CONTRACTS I/II

PROFESSOR CROSS
FALL 2016 & SPRING 2017
Table of Contents
Index.................................................................................................................................6
CHAPTER I. An Introduction To The Study Of Contract Law.......................................9
Burch v. Second Judicial District Court of Nevada......................................................10
CHAPTER II. Enforcing Promises: Bases Of Legal Obligation....................................12
Ray v. William G. Eurice & Bros., Inc.........................................................................13
Park 100 Investors, Inc. v. Kartes.................................................................................15
Hamer v. Sidway...........................................................................................................17
Baehr v. Penn-O-Tex Oil Corp.....................................................................................18
Dougherty v. Salt..........................................................................................................20
Batsakis v. Demotsis.....................................................................................................21
Plowman v. Indian Refining Co....................................................................................22
Kirksey v. Kirksey........................................................................................................24
Greiner v. Greiner.........................................................................................................25
Wright v. Newman........................................................................................................26
Allegheny College v. National Chautauqua County Bank...........................................28
King v. Trustees of Boston University.........................................................................29
Katz v. Danny Dare, Inc...............................................................................................31
Shoemaker v. Commonwealth Bank.............................................................................33
Credit Bureau Enterprises, Inc. v. Pelo.........................................................................35
Commerce Partnership 8098 Limited Partnership v. Equity Contracting Co., Inc.......37
Watts v. Watts...............................................................................................................38
Mills v. Wyman............................................................................................................40
Webb v. McGowin........................................................................................................41
CHAPTER III. Reaching Agreement: The Process Of Contract Formation..................42
Lonergan v. Scolnick....................................................................................................43
Izadi v. Machado Ford..................................................................................................44
Normile v. Miller..........................................................................................................45
Petterson v. Pattberg.....................................................................................................47
Cook v. Coldwell Banker/Frank Laiben.......................................................................49
James Baird Co. v. Gimbel Bros., Inc...........................................................................51
Drennan v. Star Paving Co............................................................................................53
Berryman v. Kmoch......................................................................................................55
Pop's Cones, Inc. v. Resorts International Hotel, Inc...................................................57
Princess Cruises, Inc. v. General Electric Co...............................................................59
Brown Machine, Inc. v. Hercules, Inc..........................................................................61
Dale R. Horning Co. v. Falconer Glass Industries, Inc.................................................63
Hill v. Gateway 2000, Inc.............................................................................................65
Klocek v. Gateway, Inc.................................................................................................66
Walker v. Keith.............................................................................................................67
Quake Construction, Inc. v. American Airlines, Inc.....................................................69
CHAPTER IV. The Statute Of Frauds............................................................................71
Crabtree v. Elizabeth Arden Sales Corp.......................................................................72
Winternitz v. Summit Hills Joint Venture....................................................................73
3

.................................................................................75 Alaska Democratic Party V. Rice

Buffaloe v. Hart............................................................................................................77
Bazak International Corp. v. Mast Industries, Inc........................................................79
CHAPTER V. The Meaning Of The Agreement: Principles Of Interpretation And The
Parol Evidence Rule..........................................................................................................81
Joyner v. Adams............................................................................................................82
Frigaliment Importing Co. v. B.N.S. International Sales Corp.....................................83
C & J Fertilizer, Inc. v. Allied Mutual Insurance Co....................................................85
Thompson v. Libby.......................................................................................................87
Taylor v. State Farm Mutual Automobile Insurance Co...............................................88
Sherrodd, Inc. v. Morrison-Knudsen Co.......................................................................90
Nanakuli Paving & Rock Co. v. Shell Oil Co...............................................................91
CHAPTER VI. Supplementing The Agreement: Implied Terms, The Obligation Of Good
Faith, And Warranties.............................................................................................93
Wood v. Lucy, Lady Duff-Gordon...............................................................................94
Leibel v. Raynor Manufacturing Co.............................................................................95
Locke v. Warner Bros., Inc...........................................................................................96
Empire Gas Corp v. American Bakeries.......................................................................98
Donahue v. Federal Express Corp..............................................................................100
Bayliner Marine Corp. v. Crow..................................................................................102
Caceci v. Di Canio Construction Corp.......................................................................105
CHAPTER VII. Avoiding Enforcement: Incapacity, Bargaining Misconduct,
Unconscionability, And Public Policy............................................................................107
Dodson v. Shrader.......................................................................................................108
Hauer v. Union State Bank of Wautoma....................................................................110
Totem Marine Tug & Barge, Inc. v. Aleyska Pipeline Service Co............................112
Odorizzi v. Bloomfield School District......................................................................114
Syester v. Banta..........................................................................................................116
Hill v. Jones................................................................................................................118
Williams v. Walker-Thomas Furniture Co.................................................................119
Adkins v. Labor Ready, Inc........................................................................................120
Cooper v. MRM Investment Co.................................................................................122
Valley Medical Specialists v. Farber..........................................................................124
Borelli v. Brusseau......................................................................................................125
R.R. v. M.H. & another...............................................................................................127
CHAPTER VIII. Justification For Nonperformance: Mistake, Changed Circumstances,
And Contractual Modifications.......................................................................................129
Lenawee County Bd. of Health v. Messerly...............................................................130
Wil-Fred's, Inc. v. Metropolitan Sanitary District......................................................132
Karl Wendt Farm Equip. Co. v. International Harvester Co......................................134
Mel Frank Tool & Supply, Inc. v. Di-Chem Co.........................................................136
Alaska Packers' Assoc. v. Domenico..........................................................................137
Kelsey-Hayes Co. v. Galtaco Redlaw Castings Corp.................................................138
Brookside Farms v. Mama Rizzos's, Inc.....................................................................140
CHAPTER IX. Rights And Duties Of Third Parties....................................................142
Vogan v. Hayes Appraisal Associates, Inc.................................................................143
4

...............................................................................................144 Zigas v. Superior Court

Herzog v. Irace............................................................................................................145
Sally Beauty Co. v. Nexxus Prods. Co.......................................................................146
CHAPTER X. Consequences Of Nonperformance: Material Breach, Anticipatory
Repudiation, And Express Conditions............................................................................148
Jacob & Youngs, Inc. v. Kent.....................................................................................149
Sackett v. Spindler......................................................................................................151
Truman L. Flatt & Sons Co. v. Schupf.......................................................................152
Hornell Brewing Co. v. Spry......................................................................................154
Oppenheimer & Co. v. Oppenheim, Apel, Dixon & Co.............................................155
J.N.A. Realty Corp. v. Cross Bay Chelsea, Inc..........................................................156
Morin Bldg. Prods. Co. v. Baystone Constr., Inc.......................................................158
CHAPTER XI. Expectation Damages: Principles And Limitations.............................159
Turner v. Benson.........................................................................................................160
Handicapped Children's Educ. Bd. v. Lukaszewski...................................................162
American Standard, Inc. v. Schectman.......................................................................163
Hadley v. Baxendale...................................................................................................165
Florafax International, Inc. v. GTE Market Resources, Inc........................................167
Rockingham County v. Luten Bridge Co...................................................................169
Boehm v. American Broadcasting Co........................................................................170
Jetz Serv. Co. v. Salina Properties..............................................................................172
Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co......................................173
Erlich v. Menezes........................................................................................................175
Roth v. Speck..............................................................................................................176
CHAPTER XII. Alternatives To Expectation Damages: Reliance And Restitutionary
Damages, Specific Performance, And Agreed Remedies...............................................177
Wartzman v. Hightower Productions, Ltd..................................................................178
Walser v. Toyota Motor Sales, U.S.A., Inc................................................................179
United States ex rel. Coastal Steel Erectors, Inc. v. Algernon Blair, Inc...................180
Lancellotti v. Thomas.................................................................................................181
Ventura v. Titan Sports, Inc........................................................................................182
City Stores Co. v. Ammerman....................................................................................184
American Broadcasting Co. v. Wolf...........................................................................185
Wasserman's Inc. v. Township of Middletown...........................................................187
5
Index
Adkins v. Labor Ready, Inc............................................................................................120
Alaska Democratic Party V. Rice.....................................................................................75
Alaska Packers' Assoc. v. Domenico..............................................................................137
Allegheny College v. National Chautauqua County Bank...............................................28
American Broadcasting Co. v. Wolf...............................................................................185
American Standard, Inc. v. Schectman...........................................................................163
Baehr v. Penn-O-Tex Oil Corp.........................................................................................18
Batsakis v. Demotsis.........................................................................................................21
Bayliner Marine Corp. v. Crow......................................................................................102
Bazak International Corp. v. Mast Industries, Inc............................................................79
Berryman v. Kmoch..........................................................................................................55
Boehm v. American Broadcasting Co............................................................................170
Borelli v. Brusseau..........................................................................................................125
Brookside Farms v. Mama Rizzos's, Inc.........................................................................140
Brown Machine, Inc. v. Hercules, Inc..............................................................................61
Buffaloe v. Hart................................................................................................................77
Burch v. Second Judicial District Court of Nevada..........................................................10
C & J Fertilizer, Inc. v. Allied Mutual Insurance Co........................................................85
Caceci v. Di Canio Construction Corp...........................................................................105
City Stores Co. v. Ammerman........................................................................................184
Commerce Partnership 8098 Limited Partnership v. Equity Contracting Co., Inc...........37
Cook v. Coldwell Banker/Frank Laiben...........................................................................49
Cooper v. MRM Investment Co.....................................................................................122
Crabtree v. Elizabeth Arden Sales Corp...........................................................................72
Credit Bureau Enterprises, Inc. v. Pelo.............................................................................35
Dale R. Horning Co. v. Falconer Glass Industries, Inc.....................................................63
Dodson v. Shrader...........................................................................................................108
Donahue v. Federal Express Corp..................................................................................100
Dougherty v. Salt..............................................................................................................20
Drennan v. Star Paving Co................................................................................................53
Empire Gas Corp v. American Bakeries...........................................................................98
Erlich v. Menezes............................................................................................................175
Florafax International, Inc. v. GTE Market Resources, Inc............................................167
Frigaliment Importing Co. v. B.N.S. International Sales Corp.........................................83
Greiner v. Greiner.............................................................................................................25
Hadley v. Baxendale.......................................................................................................165
Hamer v. Sidway...............................................................................................................17
Handicapped Children's Educ. Bd. v. Lukaszewski.......................................................162
Hauer v. Union State Bank of Wautoma........................................................................110
Herzog v. Irace................................................................................................................145
Hill v. Gateway 2000, Inc.................................................................................................65
Hill v. Jones....................................................................................................................118
Hornell Brewing Co. v. Spry..........................................................................................154
6

Izadi v. Machado Ford......................................................................................................44

J.N.A. Realty Corp. v. Cross Bay Chelsea, Inc..............................................................156
Jacob & Youngs, Inc. v. Kent.........................................................................................149
James Baird Co. v. Gimbel Bros., Inc...............................................................................51
Jetz Serv. Co. v. Salina Properties..................................................................................172
Joyner v. Adams................................................................................................................82
Karl Wendt Farm Equip. Co. v. International Harvester Co..........................................134
Katz v. Danny Dare, Inc...................................................................................................31
Kelsey-Hayes Co. v. Galtaco Redlaw Castings Corp.....................................................138
King v. Trustees of Boston University.............................................................................29
Kirksey v. Kirksey............................................................................................................24
Klocek v. Gateway, Inc.....................................................................................................66
Lancellotti v. Thomas.....................................................................................................181
Leibel v. Raynor Manufacturing Co.................................................................................95
Lenawee County Bd. of Health v. Messerly...................................................................130
Locke v. Warner Bros., Inc...............................................................................................96
Lonergan v. Scolnick........................................................................................................43
Mel Frank Tool & Supply, Inc. v. Di-Chem Co.............................................................136
Mills v. Wyman................................................................................................................40
Morin Bldg. Prods. Co. v. Baystone Constr., Inc...........................................................158
Nanakuli Paving & Rock Co. v. Shell Oil Co...................................................................91
Normile v. Miller..............................................................................................................45
Odorizzi v. Bloomfield School District..........................................................................114
Oppenheimer & Co. v. Oppenheim, Apel, Dixon & Co.................................................155
Park 100 Investors, Inc. v. Kartes.....................................................................................15
Petterson v. Pattberg.........................................................................................................47
Plowman v. Indian Refining Co........................................................................................22
Pop's Cones, Inc. v. Resorts International Hotel, Inc.......................................................57
Princess Cruises, Inc. v. General Electric Co...................................................................59
Quake Construction, Inc. v. American Airlines, Inc.........................................................69
R.R. v. M.H. & another...................................................................................................127
Ray v. William G. Eurice & Bros., Inc.............................................................................13
Rockingham County v. Luten Bridge Co.......................................................................169
Roth v. Speck..................................................................................................................176
Sackett v. Spindler..........................................................................................................151
Sally Beauty Co. v. Nexxus Prods. Co...........................................................................146
Sherrodd, Inc. v. Morrison-Knudsen Co...........................................................................90
Shoemaker v. Commonwealth Bank.................................................................................33
Syester v. Banta..............................................................................................................116
Taylor v. State Farm Mutual Automobile Insurance Co...................................................88
Thompson v. Libby...........................................................................................................87
Totem Marine Tug & Barge, Inc. v. Aleyska Pipeline Service Co................................112
Truman L. Flatt & Sons Co. v. Schupf...........................................................................152
Turner v. Benson.............................................................................................................160
United States ex rel. Coastal Steel Erectors, Inc. v. Algernon Blair, Inc.......................180
Valley Medical Specialists v. Farber..............................................................................124
7

Ventura v. Titan Sports, Inc............................................................................................182

Vogan v. Hayes Appraisal Associates, Inc.....................................................................143
Walker v. Keith.................................................................................................................67
Walser v. Toyota Motor Sales, U.S.A., Inc....................................................................179
Wartzman v. Hightower Productions, Ltd......................................................................178
Wasserman's Inc. v. Township of Middletown...............................................................187
Watts v. Watts...................................................................................................................38
Webb v. McGowin............................................................................................................41
Wil-Fred's, Inc. v. Metropolitan Sanitary District..........................................................132
Williams v. Walker-Thomas Furniture Co.....................................................................119
Winternitz v. Summit Hills Joint Venture........................................................................73
Wood v. Lucy, Lady Duff-Gordon...................................................................................94
Wright v. Newman............................................................................................................26
Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co..........................................173
Zigas v. Superior Court...................................................................................................144
8

CHAPTER I. An
Introduction To The Study
Of Contract Law
9 Burch v. Second Judicial District Court of Nevada
Burch v. Second Judicial District Court of Nevada

Citation. 49 P.3d 647.

Brief Fact Summary. Plaintiff Burch purchased a home and homebuyer's warranty from
Defendant Double Diamond (note: Double Diamond, not the named defendant, is the real
party of interest and will hereafter be referred to as "Defendant"). When problems arose
with the home, Plaintiffs brought a suit against Defendant. However, the homebuyer's
warranty includes an arbitration provision.

Synopsis of Rule of Law. While the general rule is that a party is bound by their
signature, where a provision of an adhesion contract is unconscionable it will be
unenforceable against the weaker party.

Facts. Plaintiff purchased a home developed and constructed by Defendant. Four months
after closing, Plaintiff received a thirty-one page warranty booklet from Defendant. At the
Defendant's request, Plaintiff signed the booklet. However, Plaintiff did not read the
booklet. The warranty booklet included a provision requiring all disputes arising from the
warranty to be settled through binding arbitration.

The arbitration provision was located on page six of the booklet, following five pages of
provisions only applicable to non-Nevada residents. Defendant told Plaintiff the warranty
was issued automatically and gave them greater protection. In fact, the warranty actually
limited the protection available to them under Nevada law. The provision also granted
Defendant the exclusive right to decide the rules governing the arbitration and select the
arbitrator.

Plaintiff experienced problems with the home. Defendant offered to provide some, but
not all, of the remedial work requested by Plaintiff. Plaintiff filed a claim seeking
damages. The trial court granted Defendant's motion to compel arbitration. In the present
case, Plaintiff is seeking a writ of mandamus to compel the trial court to vacate its order
compelling arbitration.

Issue. Is the arbitration provision enforceable against Plaintiff?

Held. No. The arbitration provision was not enforceable because it was unconscionable.

1 An adhesion contract is "a standardized contract form offered to

consumers . . . on a 'take it or leave it' basis, without affording the
consumer a realistic opportunity to bargain." The weaker party in an
adhesion contract has to choice as to the terms of the contract. In the
present case, the warranty consisted of pre-printed, standardized forms and
Plaintiff was given no opportunity to negotiate the terms of the warranty.
Therefore, the Court characterizes the warranty as an adhesion contract.
2 An adhesion contract will be enforced where "plain and clear notification
of the terms and an under standing consent" are present and the contract
10 Burch v. Second Judicial District Court of Nevada
1 "falls within the reasonable expectations of the weaker . . . party."
However, where the contract or a clause of a contract is unconscionable, it
will be unenforceable. For a court to refuse to enforce a contract or clause
based on unconscionability there must generally be both procedural and
substantive unconscionability.

2 In determining whether the arbitration provision was procedurally

unconscionable, the court considered several facts. The Court determined
that because Plaintiff did not have an opportunity to read or negotiate the
provisions, the arbitration provision was located on the sixth page of the
agreement, and was presented to Plaintiff as an automatic granting of extra
protection for their home; Plaintiff did not have a "meaningful
opportunity" to agree to the terms of the warranty. Under these facts, the
Court found the procedural unconscionability to be great.

3 In determining that the arbitration provision was also substantively

unconscionable, the Court considered the fact that Defendant had the right
to both decide the rules governing the arbitration and select the arbitrator.
Because the Court determined that the arbitration provision was both
procedural and substantive unconscionability, it found that the provision
was unenforceable.

Discussion. In the present case, the adhesion contract included an arbitration provision.
Because the Court determined that the provision was both procedurally and substantively
unconscionable, the arbitration provision was unenforceable against Plaintiff.
11

CHAPTER II. Enforcing

Promises: Bases Of Legal
Obligation
12 Ray v. William G. Eurice & Bros., Inc.
Ray v. William G. Eurice & Bros., Inc.

Citation. 201 Md. 115, 93 A.2d 272 (1952).

Brief Fact Summary. Defendant William G. Eurice & Bros., Inc., entered into a contract
to build a house for Plaintiff Ray. After signing the contract, the parties disagreed as to
which specifications were to be used.

Synopsis of Rule of Law. Unilateral mistake, unlike mutual mistake, does not prevent
the meeting of the minds required for contract formation.

Facts. Plaintiff decided to build a house and entered into negotiations with a number of
builders, including Defendant. Following an estimate from Defendant, Plaintiff had plans
for the house drawn up by an architect so as to get a final bid from Defendant. Plaintiff
and Defendant discussed each item of the seven page specifications drawn up by
Plaintiff's architect. During the discussion, Defendant vetoed and changed some of the
specifications. These changes were noted in green ink, and a copy of the specifications
was given to Defendant to make a formal written bid. Defendant drew up a three page
unsigned proposed contract which contradicted many of the specifications in the seven
pages previously discussed by the parties. Plaintiff informed Defendant that his attorney
would draw up the contract. Based on the seven page specifications and green ink
changes, Plaintiff had the specifications rewritten into a five page "Memorandum
Specifications". The parties reviewed each item of the contract before signing. The
parties later signed the reverse side of each page of the contract, five page specifications,
and the plans.

Just before construction was to begin, Defendant indicated that the house could not be
built according to the five page specifications for the contract price. After several
attempts, the parties were unable to work out their differences. Defendant refused to
perform under the contract.

Defendant claims that the contract drawn up by Plaintiff's attorney was to be based on the
three-page proposed contract and that the five page specifications were not physically
attached to the contract when signed. Plaintiff states that while the specifications may not
have been physically attached, the five page specifications were present and discussed at
the signing.

Issue. Did the parties create an enforceable contract to build a house?

Held. Yes. The unilateral mistake of Defendant did not prevent the formation of an
enforceable contract.

1 The Court notes that a party will not be bound by their signature where
there is fraud, duress, or mutual mistake. The trial court found that the
mistake as to what specifications would be used prevented a meeting of
the minds, thereby preventing the formation of an enforceable contract
between the parties.
13 Ray v. William G. Eurice & Bros., Inc.
1 On appeal, the Court viewed the mistake differently. The Court reasoned
that the mistake, if any, was unilateral. The contract clearly indicated
which specifications were to be used. Also, Defendant had access to the
specifications and even signed the back of the specifications at one point.
Because only Defendant was mistaken as to the specifications to be used,
the mistake was unilateral. A unilateral mistake does not prevent the
formation of an enforceable contract.

Discussion. In the present case, Defendant argued that a contract was not formed because
the parties did not agree to the same specifications. The Court determines that the
contract clearly indicated which specifications were to be used and that if there was a
mistake, it was only on the part of Defendant. Because the mistake was unilateral, not
bilateral, the mistake did not prevent the parties from creating an enforceable contract.
14 Park 100 Investors, Inc. v. Kartes
Park 100 Investors, Inc. v. Kartes

Citation. 650 N.E.2d 347 (1995).

Brief Fact Summary. Plaintiff, Park 100 Investors, Inc., entered into an agreement to
lease facilities to Defendant Kartes. Defendant signed a personal guaranty of the lease
after being told by Plaintiff that it was the lease agreement. After Defendant failed to
make rent payments under the agreement, Plaintiff initiated this cause of action to hold
Defendant personally liable for the unpaid rent.

Synopsis of Rule of Law. Fraud is an exception to the general rule that a party is held to
their signature. Where the party's signature is procured through fraud, the defrauded party
is not held to the agreement.

Facts. Defendant entered in to an agreement to lease facilities from Plaintiff. Defendant

provided a lease form to Plaintiff. The lease form did not include a personal guaranty of
the lease. Additionally a personal guaranty was never discussed during the lease
agreement negotiations. On the evening before Defendant was to move into the facility,
Plaintiff presented Defendant with "lease papers" that needed to be signed that evening.
Defendant called his attorney to confirm that the lease agreement had been approved
before signing the "lease papers." Plaintiff overheard Defendant's call to the attorney and
remained silent. Defendant signed the "lease papers" entitled "Lease Agreement."
Plaintiff never informed Defendant that the "Lease Agreement" was actually a personal
guaranty of the lease.

Defendant did not discover that the personal guaranty existed until years later. At the time
of the discovery, Defendant disavowed the guaranty. Defendant's interest in the company
renting the facility was eventually transferred. The new owner's of Defendant's interest in
the company failed to make rent payments and Plaintiff initiated this cause of action to
hold Defendant personally liable for the unpaid rent.

Issue. Is the personal guaranty enforceable?

Held. No. The personal guaranty is not enforceable because Defendant's signature on the
guaranty was induced by fraud.

1 In the present case, the Court finds that Plaintiff induced Defendant to
sign the guaranty through fraud. A personal guaranty was not discussed
during the lease negotiations and the lease agreement did not make any
reference to the guaranty. The guaranty document was entitled "Lease
Agreement" and Plaintiff did not reveal to Defendant the true nature of the
document.

2 In addition, the Court notes that Defendant did call an attorney to

confirm that the lease agreement had been approved. Plaintiff overheard
this conversation, but said nothing to allow Defendant to continue to
believe that it was the lease agreement that was being signed.
15 Park 100 Investors, Inc. v. Kartes
1 The Court does not find the trial court's conclusion that the guaranty is
unenforceable because Plaintiff obtained Defendant's signature through
misrepresentation clearly erroneous. Therefore, the trial court's judgment
is affirmed.

Discussion. In the present case, Defendant's signature on the guaranty was obtained by
fraud and misrepresentation. While the general rule is that a person is bound by their
signature, where the signature is procured by fraud, the defrauded party will not be
bound.
16 Hamer v. Sidway
Hamer v. Sidway

Citation. 124 N.Y. 538, 27 N.E. 256 (1891).

Brief Fact Summary. William E. Story, Sr. (hereinafter Uncle) promised to give William
E. Story, 2d (hereinafter Nephew) $5,000 if he refrained from certain behavior prior to
reaching the age of twenty-one. Plaintiff, an assignee of Nephew, has brought this claim
against Defendant, executor of Uncle, to enforce the promise made by Uncle.

Synopsis of Rule of Law. Refraining from behavior one has a legal right to engage in
may be sufficient consideration to make an agreement enforceable.

Facts. At the celebration of the anniversary of Nephews parents and in the presence of
family and guests, Uncle promised to give Nephew $5,000 if Nephew did not drink, use
tobacco, swear, or play cards or billiard for money before reaching the age of twenty-one.
Upon reaching the age of twenty-one, Nephew wrote Uncle to inform him that he had
met all of the conditions necessary to receive the $5,000. Uncle wrote Nephew
confirming that the money was his, but indicated that Uncle would hold on to it until he
thought Nephew was capable of having it. Uncle died prior to transferring any of the
$5,000 to Nephew.

Issue. Can Plaintiff recover the $5,000 from Defendant?

Held. Yes. Because Nephew refrained from behavior he had a legal right to engage in,
sufficient consideration existed to make Uncle's promise enforceable.

1 Defendant argued that the agreement should not be enforced because it

lacked consideration. Defendant's argument is that Nephew benefited from
refraining from the behavior while Uncle did not benefit, therefore
because there was no detriment to Nephew and no benefit to Uncle there
could be no consideration.

2 The Court disagreed with Defendant. Because Nephew refrained from

behavior he had a legal right to engage in, the Court found sufficient
detriment to Nephew. In addition, the Court disagrees with Defendant's
assumption that Uncle in no way benefited from Nephew performing the
conditions imposed by Uncle's promise.

Discussion. In the present case, Nephew met the conditions of Uncle's promise by
refraining from behavior he had a legal right to engage in. Meeting Uncle's conditions
supplied sufficient consideration to make the agreement enforceable.
17 Baehr v. Penn-O-Tex Oil Corp.
Baehr v. Penn-O-Tex Oil Corp.

Citation. 258 Minn. 533, 104 N.W.2d 661 (1960).

Brief Fact Summary. Kemp was heavily indebted to Defendant. Defendant assisted
Kemp in keeping his business going. Plaintiff sought to recover unpaid rent from Kemp.
Defendant promised to pay the rent Kemp owed Plaintiff.

Synopsis of Rule of Law. A promise without consideration does not create an

enforceable contract.

Facts. Plaintiff leased gasoline filling stations to Kemp. Kemp was purchasing a business
and related property Defendant and as a result became heavily indebted to Defendant.
Because Kemp became unable to make payments due to Defendant, Kemp assigned
Defendant accounts receivable and to become receivable. During this period of time,
Defendant received rent paid by filling station operators and other payments made to the
business sold to Kemp. At the direction of Kemp, Defendant paid some of the debts of the
business. Defendant also placed an agent in the office to run the business.

While in Florida, Plaintiff received a letter from Kemp indicating that Defendant tied up
all of Kemp's assets. Plaintiff called Defendant about payment of rent owed by Kemp.
Defendant told Plaintiff that Kemp's affairs would be straightened out and the rent checks
would be sent. After Plaintiff did not hear from Defendant, Plaintiff wrote Defendant a
letter to ask what needed to be done to receive the rent checks. Plaintiff also indicated
that legal action would be pursued if the rent payments were not received. Defendant sent
Plaintiff a letter in response denying responsibility for the rent and stating that Defendant
was merely helping Kemp keep the business going.

Plaintiff again called Defendant to request payment of the rent. Defendant indicated that
it would be taken care of. The rent still not paid, Plaintiff brought suit after returning
from Florida.

Issue. Did Defendant's promise to pay rent create an enforceable contract?

Held. No. Because there was no consideration, an enforceable contract was not created.

1 For a promise to be enforceable it must be supported by consideration.

The promise must be the result of a bargain or negotiation for
consideration to be present. The requirement of consideration is to prevent
the enforcement of a promise that is "accidental, casual, or gratuitous."

2 Although Defendant made a promise, the court does not find there to be
an enforceable contract. Plaintiff argues that agreeing not to sue or to
delay bringing suit is sufficient consideration. The Court agrees that this
may be consideration, but under these facts, the Court determined that it is
not consideration. The Court focuses on the fact that Defendant did not ask
18 Baehr v. Penn-O-Tex Oil Corp.
1 Plaintiff to delay in bringing the suit and that it is likely that Plaintiff's
delay was motivated by personal convenience.

Discussion. In the present case, Plaintiff's offer to delay bringing suit for unpaid rent did
not create sufficient consideration to make Defendant's promise to pay rent an
enforceable contract because Defendant did not ask Plaintiff to delay bringing the suit
and the delay was likely motivated by personal convenience.
19 Dougherty v. Salt
Dougherty v. Salt

Citation. 227 N.Y. 200, 125 N.E. 94 (1919).

Brief Fact Summary. Plaintiff Dougherty, at eight years old received a promissory note
from his aunt for $3,000 payable at her death. Defendant Salt is representing Aunt's
estate.

Synopsis of Rule of Law. Although a note states that value has been received, if value
has not in fact been received, the note is unenforceable as a contract for lack of
consideration.

Facts. Aunt was visiting Plaintiff, her eight-year-old nephew, and stated that she thought
Plaintiff was a nice boy. Aunt then expressed a desire to take care of Plaintiff by issuing
him a promissory note. When she handed the note to Plaintiff she said "[y]ou have always
done for me, and I have signed this note for you." The note was written on a form
containing the words "value received."

Issue. Is the note enforceable?

Held. No. The promissory note is not enforceable because there is no consideration.
Although the form indicated that the note was for value, the Court determined that no
value had in fact been given. Because Plaintiff was not a creditor of Aunt and there was
no other value given, the note is unenforceable due to lack of consideration.

Discussion. In the present case, the promissory note was not given for value. Without
value, the note was unenforceable because it lacked consideration
20 Batsakis v. Demotsis
Batsakis v. Demotsis

Citation. 226 S.W.2d 673 (1949).

Brief Fact Summary. Plaintiff, Batsakis, loaned Defendant, Demotsis, 500,000

drachmae. In exchange for the loan, Defendant signed an instrument promising to pay
Plaintiff $2,000 in U.S. currency. The 500,000 drachmae were worth approximately
$25.00 at the time.

Synopsis of Rule of Law. Inadequacy of consideration alone will not void a contract.

Facts. Due to conditions created by World War II, Defendant could not access money and
property owned in the United States. Knowing that Defendant was in financial distress,
Plaintiff agreed to lend Defendant 500,000 drachmae, worth at the time approximately
$25.00 in U.S. currency. In exchange of the money loaned by Plaintiff, Defendant
executed a written instrument promising to pay Plaintiff $2,000 in U.S. currency.

Issue. Was the consideration inadequate?

Held. No. The consideration was not inadequate.

Defendant argued that given the great difference in value between what was given and
what was received, the consideration for the agreement was inadequate and the contract
should be voided. The Court disagreed stating inadequacy of consideration alone is not
sufficient to void a contract. The Court further noted that Defendant received exactly
what was contracted for.

Discussion. In this case, the Court expressed a reluctance to weigh the adequacy of
consideration. Without evidence of fraud, duress, or misrepresentation, the Court is
unwilling to void the contract merely because there may be insufficient consideration.
21 Plowman v. Indian Refining Co.
Plowman v. Indian Refining Co.

Citation. 20 F. Supp. 1 (E.D. Ill. 1937).

Brief Fact Summary. Plaintiffs, Plowman and seventeen others similarly situated or
their estates, worked for Defendant Indian Refining Co., for many years. Defendant
offered to pay Plaintiffs one-half of the wages currently being earned. Plaintiffs remained
on the payroll, receiving the offered money, but did not render any services other than
coming to the office for their remittance.

Synopsis of Rule of Law. Past consideration or past performance is not consideration.

Facts. Defendant told Plaintiffs that they would receive half of their current wages every
payday for the rest of their life. The consideration for this agreement was a desire to
provide for the welfare of these older employees who had worked for Defendant for
many years. Plaintiffs remained on Defendant's payroll and insurance payments
continued to be deducted from the checks. However, Plaintiffs were not required to
perform any services other than coming to pick up their checks at the office every
payday. The payments were made for almost a year before Defendant informed Plaintiffs
that they were terminating the arrangement.

Defendant disputes Plaintiffs' contention that the payments were to be made for life.
Instead, Defendant claims that the payments were made to protect the employees from
cut backs or layoffs occurring at the plant and that there was no specified duration for
receiving the remittance. According to Defendant, the arrangement was gratuitous and
was not approved by the board of directors.

Issue. Was there sufficient consideration to make the agreement an enforceable contract?

Held. No. Past consideration is not sufficient consideration to make an agreement

enforceable.

1 Plaintiffs argued that their long and faithful service as employees of

Defendant for so many years served as consideration for the agreement.
Consideration is given in exchange for or in reliance upon a promise. The
service that was already provided prior to the promise could not be said to
be in exchange for or in reliance upon Defendant's promise. Therefore, the
Court found that Plaintiffs' years of employment did not supply
consideration to make Defendant's promise enforceable.

2 The Court also quickly dismisses Plaintiffs' argument that there is moral
consideration. The Court states that moral consideration is not valid
consideration unless the moral duty was previously a legal duty. The Court
similarly notes that appreciation of Plaintiffs' service is not valid
consideration to make the promise enforceable.
22 Plowman v. Indian Refining Co.
1 In addition the Court considers Plaintiffs' actions of going to the office to
pick up the checks. The Court determines that this is a condition and not
consideration because the action benefits Plaintiffs and not Defendant.
Further, picking up the checks was a detriment to Defendant, but not to
Plaintiff.

2 The Court also notes that the agreement was not made by an officer
Defendant company with authority to make such an agreement. The Court
further determines that there was no later ratification of the agreement.
However, the decision seems to focus on lack of consideration rather than
lack of authority.

Discussion. Under these facts, Plaintiffs could not show valid consideration to make the
promise enforceable. Plaintiffs' best argument was likely that their past performance of
services to their employer, Defendant, operated as consideration for the promise.
However, past consideration is not valid consideration.
23 Kirksey v. Kirksey
Kirksey v. Kirksey

Citation. 8 Ala. 131 (1845).

Brief Fact Summary. Plaintiff Kirskey, was the sister-in law of Defendant Kirksey. After
Plaintiff's husband died, Defendant offered to put up Plaintiff on his land. Plaintiff gave
up her land and moved to Defendant's property, but approximately two years later
Defendant made Plaintiff leave his property.

Synopsis of Rule of Law. A mere gratuitous promise is without the consideration

necessary for enforcement as a contract.

Facts. Plaintiff was the wife of Defendant's brother, but was now a widow with several
children. Plaintiff lived on leased public land would have attempted to secure the land
had she continued to reside there. Defendant lived approximately sixty to seventy miles
from Plaintiff. After hearing of his brother's death, Defendant wrote Plaintiff and offered
to provide her with land to live on if she came to see him

Plaintiff left the public land she was leasing and moved to Defendant's land. For the first
two years, Defendant put Plaintiff and her family up in a comfortable home and gave her
land to cultivate. After the first two years, Defendant removed Plaintiff and placed her in
an uncomfortable house in the woods. Defendant then required that Plaintiff leave the
house in the woods.

Issue. Is there consideration to enforce Defendant's promise?

Held. No. Defendant's promise was gratuitous, and as such cannot be enforced due to
lack of consideration.

Although the Justice writing the opinion would consider Plaintiff's inconvenience valid
consideration to enforce Defendant's promise, the Court finds that the promise is merely
gratuitous and lacks consideration.

Discussion. The Court finds Defendant's promise to be gratuitous and will not enforce it
due to lack of consideration. It may be that the court was reluctant to interfere in a family
dispute. Today, the facts presented in this case would likely be analyzed under promissory
estoppel.
24 Greiner v. Greiner
Greiner v. Greiner

Citation. 131 Kan. 760, 293 P. 759 (1930).

Brief Fact Summary. Plaintiff Maggie Greiner, asked Defendant, Plaintiff's son Frank
Greiner, to move from another county to live on land she was planning to give him.
Defendant left his homestead and moved into the house Plaintiff moved to another tract
of land for him. Plaintiff indicated to several people that she was giving this tract of land
to Defendant, but never included a provision in her will or executed a deed to Defendant.

Synopsis of Rule of Law. The relocation of a party in reliance on a promise by the other
party is sufficient consideration to make the promise enforceable.

Facts. One of Plaintiff's sons died leaving her a considerable amount of property. Plaintiff
decided to attempt to put her two sons, Nicholas and Defendant, who had been
disinherited by her husband on equal footing with her other sons. To further this desire,
Plaintiff intended to give each about ninety acres of land. Later, Plaintiff contracted to
pay Nicholas $2,000.

Defendant did not live in the same county as Plaintiff. Plaintiff requested that Defendant
come and see her, at which time she indicated that she wished to give him some money.
Defendant indicated that she would prefer to have a little land for a home. Plaintiff agreed
and indicated that she would like him to move into the house on the land she inherited
and that the land would be divided up later. After Defendant moved back, Plaintiff
decided to move the house from the quarter section it was currently located on to the
eighty acre tract she had indicated to several people she intended to give to Defendant.
Plaintiff discussed putting a provision in her will and executing a deed to Defendant, but
then did not do either. Plaintiff initiated this cause of action to have Defendant removed
from the eighty acre tract.

Issue. Was there consideration?

Held. Yes. The Court found that because Defendant moved from another county to the
land and made improvements on the land, there was sufficient consideration to enforce
Plaintiff's promise to give him the land. The Court does note that when the promise was
first made it was not enforceable because it was too indefinite. However, later, when the
eighty acre tract was set apart for Defendant, the promise became sufficiently definite.

Discussion. In the present case, the Court found the actions of relocation and
improvement of land in reliance on the promise of Plaintiff sufficient consideration to
make the promise enforceable.
25 Wright v. Newman
Wright v. Newman

Citation. 266 Ga. 519, 467 S.E.2d 533 (1996).

Brief Fact Summary. Plaintiff Newman, is seeking child support from Defendant
Wright. Defendant is not the biological father of Plaintiff's son. However, for ten years
Defendant held himself out to be the child's father.

Synopsis of Rule of Law. Where a promise of parental support is made and detrimentally
relied upon, it is enforceable under promissory estoppel.

Facts. Plaintiff is seeking child support from Defendant. Defendant admits he is the
father of Plaintiff's daughter, but has introduced DNA evidence that he is not the father of
Plaintiff's son. However, Defendant is listed on the birth certificate of Plaintiff's son and
Plaintiff's son uses Defendant's surname. In addition, Defendant established a parent-
child relationship with Plaintiff's son.

Issue. Does Defendant have to pay child support for Plaintiff's son?

Held. Yes. Defendant's promise to support Plaintiff's son is enforceable under promissory
estoppel.

1 The Court quickly rejects the notion that Defendant must pay child
support based on the theory of "virtual adoption." However, the Court
states that its rejection of "virtual adoption" does not address the issue of
whether Defendant must pay child support based on a contract theory.

2 Although there is no written contract whereby Defendant agrees to pay

child support for Plaintiff's son, a promise for such support may be
enforceable under promissory estoppel. The Court determined that
Defendant knew Plaintiff's son was not his, but still placed his name on the
birth certificate, held Plaintiff's son out as his child for ten years, and
assumed the obligations of fatherhood. In addition, the Court notes that
Plaintiff detrimentally relied on Defendant's promise to support her son by
not seeking child support from her son's biological father.

Dissent. The dissent does not deny that child support enforcement may be based on
promissory estoppel. However, under these facts the dissent does not find detrimental
reliance. The dissent argues that there is nothing preventing Plaintiff from seeking child
support from the child's biological father. With no impediment from recovery of child
support, the dissent does not find detrimental reliance by Plaintiff. The dissent also notes
that Defendant did not communicate with Plaintiff's son for approximately five of the ten
years and that Defendant has not supported the child for the past seven years.
Concurrence. The concurring opinion addresses the dissent's argument that there was no
detrimental reliance. By Defendant's actions over ten years, the concurring opinion
emphasizes that Plaintiff's reliance on his promise by not pursuing child support from the
26 Wright v. Newman
child's biological father was both reasonable and detrimental. The concurring opinion
also point out that holding otherwise would likely result in injustice since it would be
extremely difficult to bring a successful paternity suit given that Defendant held himself
out to be the child's father for ten years.

Discussion. In the present case, the Court found that Defendant voluntarily promised to
support a child he knew was not biologically his and Plaintiff detrimentally relied on that
promise. Therefore, the Court held that the promise was enforceable under promissory
estoppel.
27 Allegheny College v. National Chautauqua County Bank
Allegheny College v. National Chautauqua County Bank

Citation. 246 N.Y. 369, 159 N.E. 173 (1927).

Brief Fact Summary. Mary Yates Johnston, now deceased, responded to a request from
Plaintiff, Allegheny College, for contributions by promising to give $5,000 payable thirty
days after her death. Johnston, while still living gave Plaintiff $1,000, but later gave
notice to Plaintiff that she was repudiating her promise.

Synopsis of Rule of Law. A promise to contribute to a charity may be enforceable where

there is consideration.

Facts. In response to a request for contributions, Johnston promised to give Plaintiff

$5,000 payable 30 days after her death. The money was to create a memorial fund to be
"used to educate students preparing for the ministry." Johnston paid Defendant $1,000,
payment on account, while still alive. Later Johnston told Defendant she repudiating her
promise.

Issue. Is the promise to Plaintiff enforceable?

Held. Yes. The Court finds sufficient consideration to enforce the promise.

1 A promised contribution to a charity is unenforceable without

consideration; however, that consideration may be supplied by promissory
estoppel.

2 When Plaintiff received the $1,000, it was under a duty to use the money
in accordance with the terms of the memorial fund. Plaintiff was not free
to use the money for general purposes. This assumption of duty by
Plaintiff constituted consideration and created an enforceable bilateral
agreement.

3 The Court discusses whether the restrictions on the use of the funds were
conditions to a gratuitous promise or a request for consideration. Because
the restrictions on the use of the funds benefited Johnston, and Plaintiff
could not accept the $1,000 and later decide whether to set up the fund, the
Court determined that it was a request for consideration.

Dissent. The dissent seems to focus on the argument that Plaintiff had not acted yet to
fulfill any of the conditions of the memorial fund. In characterizing the promise, the
dissent instead calls it a unilateral contract with conditions.

Discussion. Although the Court mentions promissory estoppel, it indicates that in the
present case the agreement can be enforced as a bilateral agreement so there is no need to
address promissory estoppel. The Court finds that Plaintiff's assumption of the duty to use
the money for the memorial fund is valid consideration to enforce Johnston's promise.
28 King v. Trustees of Boston University
King v. Trustees of Boston University

Citation. 420 Mass. 52, 647 N.E.2d 1196 (1995).

Brief Fact Summary. Plaintiff, wife of the late Martin Luther King, Jr., initiated this
action to recover some of King's papers from Defendant Boston University. King
provided the papers and other items to Defendant along with a letter indicating that upon
his death they would become the property of Defendant.

Synopsis of Rule of Law. Where there is donative intent and evidence that could support
a finding of a promise supported by consideration or reliance, the case is properly
submitted to the jury.

Facts. Defendant asked King if he would deposit some of his papers in its library's newly
expanded special collections. Several other universities approached King around the
same time. Plaintiff testified that King thought the papers would be safest at Defendant's
library, but thought placing them there could subject him to criticism.

King deposited some of his papers with Defendant, but in a letter to Defendant, King
indicated that the papers would remain his legal property unless otherwise indicated. Two
statements from the letter are most important:

1 "All papers and other objects which thus pass into the custody of [BU]
remain my legal property until otherwise indicated, according to the
statements below." Later the letter indicates that the papers will be
transferred to Defendant in installments until all have been transferred.

2 "In the event of [King's] death, all . . . materials deposited with [BU]
shall become from that date the absolute property of [BU]."

Issue. Was the case properly submitted to the jury?

Held. Yes. The case was properly submitted to the jury.

1 If donative intent is clear, charitable subscriptions will be enforced

according to the donor's intent when specificity of the donor's promise,
consideration, and reasonableness of the charity's reliance are considered.

2 The Court compares the first of the two statements provided above to a
bailment situation. Defendant assumed a duty of care as set forth in the
letter by accepting delivery of the papers. The Court found that the
bailment presented sufficient evidence of donative intent for the question
to go to a jury.
3 Plaintiff argues that the second statement is an attempt at a testamentary
transfer, which fails to satisfy the statutory requirements of a will. The
Court disagrees, finding that the statute of wills does not prevent a person
29 King v. Trustees of Boston University
1 from making a contract or promise that will not take effect until after
death.

2 The Court also discusses possible sources of consideration. The Court

notes that Defendant indexed the papers, made them available to
researchers, and trained staff to care for the papers and assist researchers.
In addition, the Court notes that some of Defendant's actions may have
gone beyond what was required for the bailment.

3 Because the Court finds evidence that could support a finding of a

promise made enforceable by consideration or reliance, the Court holds
that the case was properly submitted to the jury.

Discussion. In the present case, the Court determined that there was evidence that could
support a finding of clear donative intent supported by consideration or reliance. Because
there was sufficient evidence for such a finding, the case was properly submitted to the
jury.
30 Katz v. Danny Dare, Inc.
Katz v. Danny Dare, Inc.

Citation. 610 S.W.2d 121 (1980).

Brief Fact Summary. Plaintiff Katz suffered a head injury while employed by the
Defendant Danny Dare, Inc. Plaintiff was subsequently convinced to retire after being
offered a pension. After retiring, Plaintiff worked for Defendant on a part time basis, but
after two and a half years Defendant cut and then eliminated Plaintiff's pension.

Synopsis of Rule of Law. Promissory estoppel requires a promise, reasonable and

detrimental reliance on the promise, and injustice that can only be avoided by enforcing
the promise.

Facts. Plaintiff worked for Defendant from 1950 until his retirement in 1975. Plaintiff
received a head injury trying to retrieve money taken from a store operated by Defendant.
Plaintiff returned to work following the injury, but his walk was impaired, he had some
memory loss, and did not function as he had prior to the incident. After returning to work,
Plaintiff made several mistakes at considerable cost to Defendant. Defendant began
attempts to induce Plaintiff to retire. Plaintiff finally agreed to retire with a pension from
Defendant of $13,000 a year for life. Plaintiff testified that without the pension, he would
not have retired.

Plaintiff began working part time for another company and then also for Defendant on a
pert time basis. Plaintiff worked part time for Defendant for two and a half years. At this
point Defendant reduced the size of the pension check to Plaintiff. Plaintiff returned the
check and indicated that he was entitled to the full amount. Defendant stopped sending
checks testifying that the reason was Plaintiff's health had improved to where he could
return to work. Plaintiff testified that the cut was made after he refused to increase the
number of hours he was working for Defendant.

Issue. Can Plaintiff enforce the promise by Defendant to pay him a pension?

Held. Yes. Plaintiff can enforce Defendant's promise under promissory estoppel.

1 Promissory estoppel requires a promise, detrimental reliance, and

injustice that can only be avoided by enforcement of the promise.
Defendant argues that because Plaintiff had to choose between retirement
or being fired, promissory estoppel does not apply. The Court disagrees
noting that it is not clear that those were Plaintiff's only options given that
Defendant expended significant time and effort to induce Plaintiff to retire.
Under these facts, the Court determines that Plaintiff's retirement was
clearly voluntary.

2 The Court does not require Plaintiff to show that he gave up something
he had a legal right to. Instead, Plaintiff must show that he reasonably and
detrimentally relied on a promise made by Defendant.
31 Katz v. Danny Dare, Inc.
1 The Court holds that Plaintiff has met the elements of promissory
estoppel and should receive the pension owed to him by Defendant.

Discussion. Under these facts, the Court finds that Plaintiff voluntarily retired in reliance
on the promise of a pension. Plaintiff did not have to show that he gave up something he
had a legal right to. Instead, Plaintiff only needed to show that the elements of promissory
estoppel were all present.
32 Shoemaker v. Commonwealth Bank
Shoemaker v. Commonwealth Bank

Citation. 700 A.2d 1003 (1997).

Brief Fact Summary. Plaintiffs, Shoemakers, obtained a mortgage on their home from
Defendant Commonwealth Bank. Pursuant to the mortgage agreement, Plaintiffs were
required to carry insurance on the property. The homeowner's insurance on Plaintiffs'
home expired prior to the destruction of the home.

Synopsis of Rule of Law. Summary judgment is inappropriate for a promissory estoppel

claim where a genuine issue as to each element is present.

Facts. Plaintiffs obtained a mortgage on their home from Defendant. Pursuant to the
mortgage agreement, Plaintiffs were required to carry insurance on the property. Plaintiffs
allege that they received a letter from Defendant informing them that their homeowner's
insurance had been cancelled and, if a new policy was not purchased, Defendant would
purchase a policy and add the premium to the balance of their loan. Plaintiffs also allege
that they received a phone call from Defendant to the same effect. Due to the letter and
telephone call, Plaintiffs claim they did not realize the house was not insured until after it
was destroyed by fire.

Defendant admits to sending the letter, but denies the contents of the phone conversation.
Defendant insured the home, but decided to let the policy expire. Defendant claims to
have sent Plaintiffs letters informing them of the coverage and warning them a little over
a month before the coverage expired. Plaintiffs deny receiving either letter from
Defendant.

Issue. Did the lower court err in granting the motion for summary judgment on the
promissory estoppel claim?

Held. Yes. The lower court erred in granting summary judgment on the promissory
estoppel claim.

1 The elements of promissory estoppel are (1) a promise made with a

reasonable expectation of reliance, (2) reasonable and detrimental reliance
on the promise, and (3) injustice can only be avoided by enforcing the
promise. To survive a defendant's motion for summary judgment, plaintiffs
must show a genuine issue of fact with regard to each element of
promissory estoppel.

2 With regard to the first element, the Court notes that Plaintiff alleges that
Defendant promised to purchase insurance and add the premiums to their
mortgage payments. Further, the Court determines that Defendant should
have reasonably expected Plaintiffs to rely on such a promise.
3 In addressing the second element, the Court notes that Plaintiff failed to
obtain insurance.
33 Shoemaker v. Commonwealth Bank
1 Finally, the Court notes that the reasonableness of the reliance may be
considered in determining whether the third element is met. The Court
finds that a genuine issue exists as to the reasonableness of Plaintiff's
reliance.

2 Finding a genuine issue as to all three elements, the Court holds that
summary judgment was improperly granted with regard to the promissory
estoppel claim.

Discussion. In the present case, the Court found that a genuine issue existed as to each
element of the promissory estoppel claim. Therefore, the Court held that summary
judgment was inappropriately granted on the claim.
34 Credit Bureau Enterprises, Inc. v. Pelo
Credit Bureau Enterprises, Inc. v. Pelo

Citation. 608 N.W.2d 20 (Iowa 2000).

Brief Fact Summary. Plaintiff Credit Bureau Enterprises brings this action to compel
Defendant Pelo to pay medical bills arising from an involuntary hospitalization.
Defendant was hospitalized after he threatened to commit suicide. Initially, Defendant
refused to sign a release, but later read and signed the release.

Synopsis of Rule of Law. When a person is provided medical services and consent is
irrelevant due to medical incompetence, that person is required to pay for the benefit
received from those services.

Facts. Defendant was hospitalized under an emergency hospitalization order after

threatening to commit suicide. Initially, Defendant refused to sign a release. The release
makes the patient or the patient's insurance provider liable for the hospital. According to
Defendant, he was awakened at approximately 5:00 A.M. and told by a nurse that the
hospital could not insure the safety and return of his person items until he signed the
release. Defendant then read and signed the release. The release form stated that
Defendant understood he would be liable for any portion of the hospital bill not covered
by insurance. Defendant's wife filed an application to continue his involuntary
hospitalization, but Defendant was released. After his release, Defendant refused to pay
or authorize his insurance provider to pay his hospital bill.

Issue. Is Defendant required to pay the hospital bill under a theory of implied contract?

Held. Yes. Defendant is obligated to pay the hospital bill.

1 A contract implied by law is one imposed by law on the parties

regardless of their assent. Unjust enrichment is one way the law implies a
contract between parties. Where one party unjustly benefits at the expense
of another, unjust enrichment requires that the benefiting party make
restitution. In other words when a person is not acting officiously performs
a service for another, which are known and accepted, a promise to pay for
the services is implied by law. Restitution may be required even if the
services are not requested or voluntarily consented to, for example when
consent is impossible or immaterial due to age or mental impairment.

2 Defendant argues that because he did not voluntarily agree to pay for the
services and because continued hospitalization was not necessary, he
should not have to pay the hospital bill. The Court disagrees and noted that
the hospitalization was based on probable cause that Defendant was
seriously mentally impaired, which establishes that Defendant lacked
ability to consent to the treatment he received. The Court also found that
Defendant benefited from the treatment he received at the hospital.
35 Credit Bureau Enterprises, Inc. v. Pelo
1 Because Defendant was not fully mentally competent and was rendered
professional services that conferred a benefit upon him, the Court held that
he was obligated to pay for those services under a theory of implied
contract.

Discussion. In the present case, the Court found that whether Defendant's consent was
voluntary was irrelevant due to his mental condition. Therefore, the Court held that
Defendant is obligated to pay his hospital bill.
36 Commerce Partnership 8098 Limited Partnership v. Equity Contracting Co., Inc.
Commerce Partnership 8098 Limited Partnership v. Equity Contracting
Co., Inc.

Citation. 695 So. 383 (1997).

Brief Fact Summary. Defendant, Commerce Partnership 8098 Limited Partnership,

hired a general contractor to perform some improvements on their property. Plaintiff was
a subcontractor for the job, but did not receive payment.

Synopsis of Rule of Law. For a subcontractor to recover from an owner under a quasi
contract, the subcontractor must show that the owner did not pay anyone for the services
rendered by the subcontractor.

Facts. Plaintiff was a subcontractor hired to perform improvements on Defendant's

property. Following the completion of the work, Plaintiff received a punch list of
remedial work. The remedial work was not performed by Plaintiff because the partial
payment was requested and refused. Plaintiff alleges that Defendant did not fully pay the
general contractor and as a result, Plaintiff was not paid.

Issue. Can Plaintiff recover from Defendant under a quasi contract theory?

Held. No. Plaintiff cannot recover from Defendant under a quasi contract theory.

1 Plaintiff is arguing that Defendant was unjustly enriched by the

improvements Plaintiff made to Defendant's property without receiving
compensation.

2 The elements required for a quasi contract are: (1) Plaintiff conferred a
benefit on Defendant, (2) Defendant has knowledge of the benefit, (3) the
benefit has been accepted or retained by Defendant, and (4) under the
circumstances it would be inequitable for Defendant to retain the benefit
without paying for it. When a subcontractor brings a quasi contract action
against an owner, the subcontractor must exhaust remedies against the
general contractor and show that the owner received the benefit without
paying anyone. Because Plaintiff in the present case did not prove that
Defendant did not pay anyone for the benefit conferred by Plaintiff,
Plaintiff cannot recover under a quasi contract theory.

Discussion. In the present case, Plaintiff did not show that Defendant did not pay anyone
for the services performed by Plaintiff. Therefore, Plaintiff could not recover under a
quasi contract theory.
37 Watts v. Watts
Watts v. Watts

Citation. 137 Wis. 2d 506, 405 N.W.2d 303 (1987).

Brief Fact Summary. Plaintiff Watts and Defendant Watts cohabitated for twelve years.
During the relationship the parties held themselves out to be married. Plaintiff is bringing
this claim to recover property from the defendant based on multiple theories of recovery.

Synopsis of Rule of Law. Cohabitating parties may seek recovery following the end of
the relationship under contract law, unjust enrichment, and partition.

Facts. Shortly after they met, Defendant induced Plaintiff to move in with him and quit
her job. Defendant "indicated" that he would provide for Plaintiff. The parties held
themselves out as husband and wife and Plaintiff took Defendant's surname. The parties
had two children, filed join tax returns, and had a joint bank account. Plaintiff was listed
as Defendant's wife on his medical insurance and life insurance policies. During their
twelve year relationship, Plaintiff cared for their children and provided homemaking
services. Plaintiff also contributed personal property to the relationship. Plaintiff also
performed several duties for Defendant's business and a business she started with
Defendant's sister in law. Plaintiff is no longer able to return to her business since the
relationship with Defendant ended.

Issue. Can Plaintiff go forward with her claims against Defendant?

1 Can Plaintiff proceed with her claim under the divorce statute?

2 Can Plaintiff proceed with her contract claim?

3 Can Plaintiff proceed with her unjust enrichment claim?

4 Can Plaintiff proceed with her partition claim?

Held. Yes. Plaintiff can proceed with her contract, unjust enrichment, and partition
claims, but not her claim under the divorce statute.

1 Plaintiff cannot recover under the divorce statute because the legislature
did not intend for those statutes to apply to unmarried cohabitants. Further,
Plaintiff's argument that the statute applies based on marriage by estoppel
is unsuccessful because the Court is unwilling to use the parties' behavior
to apply the statute in a situation where the legislature did not intend for it
to apply.

2 Plaintiff argues that the parties created a contract to share the property
accumulated during the relationship equally. Defendant argues that such a
contract violates public policy, but the Court disagrees stating that a
bargain is not invalid merely because there is an illicit relationship
between the parties. Also, there appears to more than just sexual relations
38 Watts v. Watts
1 as consideration under these facts. Plaintiff alleges that she passed up
career and business opportunities. The Court finds that Plaintiff can bring
a claim based on contract because there are facts, such as Plaintiff quitting
her job in reliance on Defendant's promise, to support Plaintiff's
contention that there was a contract.

2 Plaintiff argues that Defendant unjustly benefited from her services

during the relationship and that Defendant should have to reimburse her
for the value of her services. The elements required to recover under
unjust enrichment are: (1) a benefit conferred on the defendant by the
plaintiff, (2) the defendant has knowledge of the benefit, and (3)
acceptance of the benefit without paying for it is inequitable. The Court
found that Plaintiff alleged facts sufficient for each element; therefore, the
Court held that Plaintiff can go forward with her unjust enrichment claim.

3 Partition applies when property is owned by more than one party. The
Court finds that the Plaintiff has alleged sufficient facts to go forward on
her partition claim.

Discussion. The Court held that Plaintiff could go forward with her contract claim, unjust
enrichment claim, and partition claim to recover from Defendant, even though the parties
were not married.
39 Mills v. Wyman
Mills v. Wyman

Citation. 20 Mass. (3 pick.) 207 (1825).

Brief Fact Summary. Plaintiff Mills, cared for the son of Defendant Wyman when he
was ill. After Son died, Defendant promised to compensate Plaintiff for the care Plaintiff
provided his son. Plaintiff is bringing this action to recover the compensation promised
by Defendant.

Synopsis of Rule of Law. Past consideration and moral obligation alone are insufficient
consideration to make a promise enforceable.

Facts. Son, age twenty-five, suddenly became ill while returning from a voyage at sea.
Plaintiff took Son in and cared for him until he died. After hearing what Plaintiff had
done, Defendant offered to pay for the expenses Plaintiff incurred while caring for Son.

Issue. Is Defendant's promise enforceable?

Held. No. Defendant's promise is not enforceable because it lacks consideration. Because
the services had already been performed before Defendant made the promise, they do not
constitute consideration to make the promise enforceable. The Court also addresses the
moral obligation of Defendant to pay for the services provided to Son. While the promise
would have been enforceable if Son had been an infant, without the additional legal
obligation of infancy, the moral obligation is also insufficient consideration.

Discussion. In the present case, Defendant's promise was not enforceable in the absence
of consideration. The Court held that neither the services performed by Plaintiff prior to
Defendant's promise nor the moral obligation of Defendant to pay for Son's care created
sufficient consideration to make the promise enforceable.
40 Webb v. McGowin
Webb v. McGowin

Citation. 27 Ala. App. 82, 168 So. 196 (1935).

Brief Fact Summary. Plaintiff Webb was injured while trying to protect McGowin from
injury. McGowin made payments to Plaintiff following his injury. Plaintiff brings this
action to compel Defendant, McGowin's estate, to continue making payments.

Synopsis of Rule of Law. A subsequent promise is enforceable where the promisor has
received a material benefit from the promisee.

Facts. Plaintiff was dropping blocks of wood from the upper floor to the ground below.
Plaintiff noticed that a falling block was about to injure McGowin. Plaintiff diverted the
block preventing McGowin from being injured, but sustaining serious injury to himself.
Had Plaintiff not diverted the block, McGowin would have been seriously injured or
killed. McGowin promised to pay Plaintiff $15 every two weeks for the rest of his life.
McGowin made the payments until his death and Plaintiff continued to receive payments
shortly after his death. Plaintiff is bringing this cause of action to compel Defendant to
continue the payments.

Issue. Can Plaintiff enforce McGowin's promise to make payments?

Held. Yes. McGowin's promise is enforceable because Plaintiff conferred a material

benefit on McGowin. While generally a moral obligation will not make an agreement
enforceable, where a material benefit has been conferred, the material benefit will
provide consideration for the subsequent promise. When Plaintiff saved McGowin's life,
McGowin received a material benefit from Plaintiff which provided consideration to
make his subsequent promise enforceable.

Discussion. In the present case, the Court found that McGowin's subsequent promise was
enforceable because he had received a material benefit from Plaintiff.
41

CHAPTER III. Reaching

Agreement: The Process
Of Contract Formation
42 Lonergan v. Scolnick
Lonergan v. Scolnick

Citation. 129 Cal. App. 2d 179, 276 P.2d 8 (1954).

Brief Fact Summary. Plaintiff Lonergan, responded to an ad placed by Defendant,

Scolnick for land the Defendant was interested in selling. Plaintiff corresponded with
Defendant through a series of letters. Defendant sold the land to a third party.

Synopsis of Rule of Law. An invitation for offers does not operate as an offer to create
an enforceable contract.

Facts. Defendant placed an ad in a newspaper indicating that he wished to sell some

property. In response to an inquiry from Plaintiff, Defendant sent Plaintiff a form letter
describing the property, giving directions to the property, and indicated the lowest price
he would accept for the property. Plaintiff wrote Defendant to request a legal description
of the property and to suggest an escrow agent "should I desire to purchase the land."
Defendant wrote Plaintiff back including a legal description, approval of the escrow
agent, and warning Plaintiff that he expected to have a buyer soon.

Defendant sold the land to a third party. After the land had been sold, Plaintiff received
Defendant's last letter. Plaintiff wrote Defendant indicating that he would soon open
escrow and requested the deed "in conformity with your offer." Plaintiff brought the
present cause of action to compel specific performance or, alternatively, to recover
damages.

Issue. Did the parties enter into a contract?

Held. No. The parties did not enter into a contract.

1 The trial court found that Defendant had made an offer, however, an
enforceable contract did not exist because Plaintiff failed to accept the
offer before it was revoked.

2 In the present case, the Court finds that Defendant did not make an offer.
Unlike the trial court, this Court characterizes Defendant's communication
with Plaintiff as an invitation for offers. Defendant clearly indicates that
there are other potential buyers and at no time agrees to hold the property
for Plaintiff.

Discussion. An enforceable contract requires an offer and acceptance. In the present case
Defendant made an invitation for offers, but at no time made an offer to Plaintiff.
Because Defendant at no time made an offer, Plaintiff could not have accepted an offer to
create a binding contract.
43 Izadi v. Machado Ford
Izadi v. Machado Ford

Citation. 550 So.2d 1135 (Fla.App. 3 Dist. 1989).

Brief Fact Summary. Plaintiff Izadi attempted to purchase a vehicle from Defendant
Machado Ford, but ultimately did not when he was unable to take advantage of
Defendant's advertised trade-in allowance. The advertisement contained small print
indicating it was only good towards two vehicle models and that the trade-in must be
worth at least $3,000 to apply to other models.

Synopsis of Rule of Law. A misleading advertisement may operate as an offer based on

the misunderstood meaning even if the party creating the advertisement does not
subjectively intend for it to be an offer.

Facts. Plaintiff attempted to purchase a vehicle from Defendant for $3,595 and a trade in.
Based on Defendant's advertisement, Plaintiff believed that any trade-in, regardless of
value, would be offered a $3,000 allowance. Plaintiff mistakenly thought the allowance
applied to the purchase of any new vehicle. In fine print the ad indicated that the
allowance applied to only two vehicle models, nether of which Plaintiff was attempting to
purchase. In addition, the individual vehicle portions of the ad indicated the offer only
applied to trade-ins worth at least $3,000 when purchasing the other models.

Issue. Can Plaintiff bring a breach of contract claim against Defendant?

Held. Yes. Plaintiff may go forward with his breach of contract claim. Based on the
allegations in Plaintiff's complaint, the Court finds it possible that the offer, when
objectively considered, was in fact what Plaintiff thought it to be. In considering the
terms of the offer, the Court looks at the offer as a whole and may disregard superfine
print. The Court will also consider whether there are conflicting or inconsistent
provisions. In addition, the Court notes that Defendant may have in fact wanted the
public to interpret the advertisement as Plaintiff did.

Discussion. In the present case, Plaintiff misunderstood Defendant's offer. However,

Plaintiff is able to proceed with the breach of contract claim because the offer may have
been what he thought it to be when objectively considered and Defendant may have made
the advertisement intentionally misleading.
44 Normile v. Miller
Normile v. Miller

Citation. 313 N.C. 98, 326 S.E.2d 11 (1985).

Brief Fact Summary. Plaintiffs Normile and Segal both attempted to purchase a piece of
real estate from Defendant Miller. Normile first submitted a bid, but Plaintiff responded
with a counteroffer. Prior to Normile's acceptance of Defendant's counteroffer, Defendant
sold the property to Segal.

Synopsis of Rule of Law. A counteroffer acts as a rejection of the original offer and does
not contain the terms of the original offer. The counteroffer, like the original offer, must
be accepted before it is revoked.

Facts. On August 4, Defendant listed a piece of real estate. Normile was shown the
property by a real estate broker. Upon seeing the property, Normile and the real estate
broker prepared an offer. The offer specified that it must be accepted by 5:00 p.m. on
August 5. Defendant received the offer, made several changes, signed and returned the
offer to Normile. When the real estate broker presented the counteroffer to Normile,
Normile neither accepted nor rejected the counteroffer and indicated that they were going
to wait to decide what to do. However, the real estate broker was under the impression
that Normile was rejecting the counteroffer based on statements made by Normile.
Normile indicated that the increased amount of earnest money and decreased duration of
the loan were problematic.

On August 5, the same real estate broker went to the home of Segal at approximately
12:30 a.m. At that time Segal signed an offer to purchase the same property with terms
very similar to Defendant's counteroffer. Defendant accepted this offer. At approximately
2:00 p.m., the real estate broker informed Normile that the counteroffer had been revoked
by stating "you snooze, you lose; the property has been sold." Prior to 5:00 p.m. on
August 5, Normile initialed Defendant's counteroffer and delivered it with the earnest
money deposit.

Normile and Segal filed separate actions, which were consolidated. The trial court
granted the Segal's motion for summary judgment.

Issue. Is there an enforceable contract to purchase the property between Normile and
Defendant?

1 Was the counteroffer a rejection of the original offer?

2 Did the deadline for acceptance become part of the counteroffer?

3 Was the counteroffer an option?

4 Did Plaintiff accept the counteroffer?

45 Normile v. Miller
Held. No. There is not an enforceable contract between Normile and Defendant to
purchase the property

1 When a potential purchaser submits an offer to the seller and the seller
makes changes to the offer prior to signing, it is generally referred to as
"qualified or conditional acceptance." The type of acceptance is a
counteroffer and functions as a rejection of the original offer submitted by
the potential purchaser. In the present case, because Defendant changed
terms of Normile's offer, Defendant did not accept Normile's offer. In fact,
Defendant's counteroffer actually operated as a rejection of Normile's
offer.

2 In the present case, the deadline for acceptance provision in Normile's

offer did not become part of Defendant's counteroffer. The Court reasons
that because Defendant at no point unconditionally assented to the terms
of Normile's offer, the terms of Normile's offer did not become part of the
counteroffer.

3 An option contract is one that grants a potential purchaser an exclusive

right to purchase property within a specified period of time for a fixed
price. The Court provides two reasons why Defendant's counteroffer does
not grant Normile an option contract. First, an option contract must be
supported by valuable consideration. In the present case, no consideration
was given. Second, Defendant's counteroffer did not promise that the offer
would remain open for a specific amount of time.

4 A potential purchaser does not have the power to accept an offer after it
has been revoked. Under these facts, Normile neither accepted nor rejected
the counteroffer when it was first presented. Normile instead expressed
concern regarding some of the terms of the counteroffer and indicated that
he was going to wait to decide whether to accept the counteroffer. When
Defendant entered into a contract with Segal, Defendant manifested an
intention to revoke the counteroffer. Revocation generally must be
communicated to the offeree to be effective. In the present case, Normile
did receive notice of the revocation through the real estate broker. Because
Normile's power of acceptance had already been terminated by
Defendant's revocation of the counteroffer, Normile's attempt to accept the
counteroffer failed.

Discussion. In this case, Defendant rejected Normile's offer by submitting a counteroffer.

Because the counteroffer operated as a rejection of Normile's original offer, the terms of
Normile's original offer were not transferred to the counteroffer. Normile did not have a
contract to purchase the property from Defendant because Normile failed to accept the
counteroffer before it was revoked.
46 Petterson v. Pattberg
Petterson v. Pattberg

Citation. 248 N.Y. 86, 161 N.E. 428 (1928).

Brief Fact Summary. Plaintiff, the executrix of Petterson's estate, is seeking $780 in
damages from Defendant, Pattberg. Petterson came to Defendant's home, having met the
other conditions, to pay off the remaining principal minus $780 pursuant to the
Defendant's offer. Defendant refused to accept the money and informed Petterson that the
bond and mortgage had been sold to a third party.

Synopsis of Rule of Law. A unilateral contract may be revoked at any time prior to the
performance of the requested action.

Facts. Defendant was the owner of a bond executed by Petterson and secured by a third
mortgage on a parcel of real estate owned by Petterson. On April 4, 1924, the amount of
unpaid principal was $5,450. Defendant told Petterson that if he paid the April
installment on time and paid the remaining principal in cash at any time before the end of
May, Defendant would deduct $780 from the amount owed.

Petterson paid the April installment on time. In late May, Petterson came to Defendant's
home and indicated that he was there to pay the remaining principal. Defendant refused
to accept the money and told Petterson that he had sold the bond and mortgage to a third
party. As a result, Petterson was required to pay the full amount of the remaining
principal.

Issue. Did Defendant revoke the offer prior to acceptance?

Held. Yes. Defendant revoked the offer to enter into a unilateral contract prior to
Petterson's acceptance.

1 A unilateral contract involves one party making a promise in exchange

for performance of an act by the other party. In a unilateral contract, the
party making the promise is not seeking a promise in return, but the
performance of the requested action. An offer to enter into a unilateral
contract is not accepted until the requested action is performed. In the
present case, the Court determined that Defendant's letter constituted an
offer to enter into a unilateral contract.

2 An offer to enter into a unilateral contract may be revoked at any time

prior to acceptance. Under these facts, the Court found that Defendant
revoked the offer prior to Petterson's acceptance when Defendant
informed Petterson that the bond and mortgage had been sold before
accepting the payment of the principal from Petterson.
Dissent. The Dissent's argument is that Defendant made Petterson's performance
impossible. Under the facts of this case, the dissent argues that Petterson did everything
he could to perform the requested action, or as the dissent characterizes it, the condition
47 Petterson v. Pattberg
precedent. The dissent does not think Defendant should benefit from a failure of a
condition when it is solely Defendant's actions that caused the condition to fail. The
dissent also notes that Defendant's letter could be construed as requesting exactly what
Petterson did, resulting in the condition having been met.

Discussion. An offer to enter into a unilateral contract may be revoked at any time prior
to the performance of the requested act. In the present case, the Court found that
Defendant revoked the offer prior to Petterson performing the requested action. However,
it should be noted that the law applied in this case is not the current law as reflected in the
Restatements of Contracts (Second).
48 Cook v. Coldwell Banker/Frank Laiben
Cook v. Coldwell Banker/Frank Laiben

Citation. 967 S.W.2d 654 (1998).

Brief Fact Summary. Plaintiff Cook was a real estate salesperson for Defendant
Coldwell Banker at the time Defendant instituted a bonus program. After receiving the
first part of her bonus, Plaintiff was informed that receiving the remaining portion of her
bonus was contingent on continued employment. When Plaintiff left her job, Defendant
refused to give her the remainder of her bonus.

Synopsis of Rule of Law. An offer to enter into a unilateral contract may not be revoked
once the offeree has made substantial performance.

Facts. Plaintiff worked as a real estate salesperson Defendant. In March, 1991, Defendant
announced a bonus program. The bonuses started at $500 for $15,000 in commissions.
For commissions from $15,000 to $25,000, an agent would receive a twenty-two percent
bonus. Commissions above $25,000 would entitle the agent to a thirty percent bonus.
According to the original terms of the bonus plan, bonuses over $500 were to be paid at
the end of the year.

In September, Plaintiff received the first portion of her bonus and was informed that the
remained of the bonus would not be given until March of the next year and that receiving
the remainder of the bonus was contingent on continued employment. At this time, the
Plaintiff had earned in excess of $32,400 in commissions. Plaintiff had already planned to
continue her employment with Defendant through the end of the year, but left her job
with Defendant in January.

Issue. Was the unilateral contract enforceable?

Held. Yes. The unilateral contract was enforceable because Plaintiff had already made
substantial performance before Defendant attempted to revoke.

1 A unilateral contract exists where one party makes a promise in exchange

for the other party's performance of a specified act or acts. An offer to
enter into a unilateral contract is accepted by performance. In the present
case, Defendant promised to pay Plaintiff a bonus in exchange for
Plaintiff's action of earning commissions. The Court found that the bonus
program constituted an offer to enter into a unilateral contract.

2 Defendant argues that when it changed the terms of the bonus program, it
operated as a revocation of the previous offer and the creation of a new
offer. Because Plaintiff had not yet completed performance, Defendant
argued that the original offer could be revoked. Defendant further argues
that there is not an enforceable unilateral contract from the second offer
because Plaintiff did not remain employed by Defendant through March.
49 Cook v. Coldwell Banker/Frank Laiben
1 Generally, an offer can be revoked before it is accepted in the absence of
consideration. However, the offer may not be revoked if the offeree has
substantially performed. Substantial performance may operate as
consideration to make the offer irrevocable. In the present case, the Court
finds that at the time of the attempted revocation, Plaintiff had
substantially performed by remaining an employee of Defendant and
earning over $32,400 in commissions.

Discussion. In the present case, Plaintiff substantially performed under the unilateral
contract by remaining employed and earning commissions sufficient to put her in the
highest tier of the bonus program prior to Defendant's attempt to revoke. Because
Plaintiff had already substantially performed, Defendant's attempt to revoke was
ineffective.
50 James Baird Co. v. Gimbel Bros., Inc.
James Baird Co. v. Gimbel Bros., Inc.

Citation. 64 F.2d 344 (2d Cir. 1933).

Brief Fact Summary. Plaintiff used a bid submitted by Defendant, in creating a bid.
Plaintiff seeks to enforce Defendant's bid.

Synopsis of Rule of Law. A general contractor cannot enforce a bid made by a

subcontractor as a bilateral contract when the general contractor is under no obligation to
use the subcontractor's bid if awarded the job and the general contractor did not accept
the subcontractor's bid before it was revoked. A general contractor is also unable to
enforce the subcontractor's bid based on promissory estoppel when there is no
consideration

Facts. Plaintiff received a bid from Defendant for supplying linoleum needed in the
construction of a public building. Plaintiff used Defendant's bid in computing the bid
submitted to the public authorities. Defendant realized that a mistake had been made in
computing the amount of linoleum needed and that the job would require a greater
amount. The public authorities accepted Plaintiff's bid. Plaintiff received Defendant's
written confirmation of withdrawal the day after the public authorities accepted Plaintiff's
bid.

Issue. Can Plaintiff enforce Defendant's bid?

1 Can Plaintiff enforce Defendant's bid as a contract?

2 Can Plaintiff enforce Defendant's bid under the doctrine of promissory

estoppel?

Held. No. Plaintiff cannot enforce Defendant's bid under either theory.

1 A contract is not automatically formed when a general contractor uses

the bid of a subcontractor in creating a bid, even if that bid results in the
general contractor being awarded the job. A bilateral contract is not
formed because the general contractor is not required to use the
subcontractor if awarded the job.

2 In addition, a contract was not formed between the general contractor

and the subcontractor under these facts because the general contractor did
not accept the subcontractors bid before it was revoked.

3 The Court rejects Plaintiff's promissory estoppel claim based on a lack of

consideration.
4 The Court also reasons that this is not an option contract because
enforcing the subcontractor's bid as an option contract would require the
subcontractor to keep the offer open, but the general contractor would not
51 James Baird Co. v. Gimbel Bros., Inc.
1 be required to purchase from the subcontractor. Although not mentioned
by the Court, another reason this is not an option contract is lack of
consideration.

Discussion.

1 A general contractor cannot enforce a subcontractor's bid when the

general contractor is not required to use the subcontractor if the job is
awarded and the subcontractor's bid is revoked before the general
contractor accepted.

2 This Court does not allow the general contractor to enforce the
subcontractor's bid using promissory estoppel. The Court does not allow
the Plaintiff to recover under promissory estoppel where there is no
consideration. The Court's holding on the promissory estoppel claim may
be explained in part by the limited use of promissory estoppel at the time
of the decision (1933).
52 Drennan v. Star Paving Co.
Drennan v. Star Paving Co.

Citation. 1 Cal. 2d 409, 333 P.2d 757 (1958).

Brief Fact Summary. Plaintiff received a bid from Defendant that was used in compiling
a bid. Plaintiff was awarded the work and is suing to enforce Defendant's bid.

Synopsis of Rule of Law. A general contractor may enforce a subcontractor's bid where
there is reasonable detrimental reliance under a theory of promissory estoppel.

Facts. Plaintiff received a bid from Defendant for paving. Based on Defendant's bid for
the paving work, Plaintiff compiled and submitted a bid for the job. Plaintiff was awarded
the job. The day after Plaintiff was awarded the job, Plaintiff stopped by the Defendant's
office. Defendant told Plaintiff that a mistake had been made and the paving could not be
done for the price indicated in Defendant's bid.

Issue. Can Plaintiff enforce Defendant's bid?

1 Can Plaintiff enforce Defendant's bid as a contract?

2 Can Plaintiff enforce Defendant's bid based on promissory estoppel?

Held. Yes. Plaintiff can enforce Defendant's bid based on promissory estoppel, but not as
a contract.

1 A general contractor cannot enforce a subcontractor's bid as a bilateral

contract or an option contract when there is no consideration.

2 A general contractor may enforce a subcontractor's bid where reasonable

detrimental reliance makes the offer (bid) binding. In this case, Plaintiff
did not bargain for the use of Defendant's bid. However, it was reasonable
for Plaintiff to rely on Defendant's bid in creating the bid Plaintiff
submitted. In addition, Defendant's submission of a bid was motivated by
furthering its own business and Defendant's business would only be
furthered if the general contractor were awarded the job and gave the
paving work to Defendant. In other words, Defendant submitted the bid to
Plaintiff because Defendant wanted Plaintiff to use the bid in compiling a
bid for the job.

3 The Court notes that had Defendant's mistake been so obvious as to be

known to Plaintiff, Plaintiff's reliance would not have been reasonable and
the bid would not be enforceable under promissory estoppel. However,
under these facts, the Court does not find Plaintiff's reliance unreasonable.
4 The Court also rejects Defendant's contention that Plaintiff failed to
mitigate damages. Plaintiff reasonably mitigated damages by seeking
53 Drennan v. Star Paving Co.
1 other bids from subcontractors for the paving work and accepting the
lowest bid.

Discussion. While a general contractor cannot enforce a subcontractor's bid as a contract,

the bid may be enforce under promissory estoppel. To enforce a subcontractor's bid under
promissory estoppel, the general contractor's reliance on the bid must be reasonable.
54 Berryman v. Kmoch
Berryman v. Kmoch

Citation. 221 Kan. 304, 59 P.2d 790 (1977).

Brief Fact Summary. Plaintiff Berryman, filed a declaratory judgment action seeking to
have an option contract between himself and Defendant Kmoch, declared null and void.
Defendant seeks damages for Plaintiff's failure to convey the land.

Synopsis of Rule of Law. An option contract without consideration is an offer to sell

which may be withdrawn at any time before acceptance.

Facts. Plaintiff signed a written option agreement drawn up by Defendant. The

agreement stated that "[f]or $10.00 and other valuable consideration" an option would be
granted for 120 days. However, the $10.00 was not paid. Prior to the duration of the 120
days, Plaintiff contacted Defendant and asked to be released from his obligation under the
option agreement. The parties were unable to work out anything definite. Plaintiff then
sold the land to another person. After Plaintiff sold the land, Defendant attempted to
exercise the option. Defendant was informed that the land had already been sold.
Defendant continued in his attempts to exercise the option.

Issue. Can Defendant enforce the option agreement?

1 Can Defendant enforce the option agreement as an option contract?

2 Can Defendant enforce the option agreement under promissory estoppel?

Held. No. Defendant cannot enforce the option agreement under either theory

1 To have a valid option contract there must be consideration. Without

consideration, the option agreement is merely an offer to sell. An offer to
sell may be withdrawn at any time before it is accepted. In the present
case, no consideration was given; therefore, Plaintiff could revoke the
offer at any time prior to Defendant's acceptance.

2 For promissory estoppel to substitute for consideration there must be (1)

a promise made under circumstances where the promisor reasonably
expects the promisee to act in reliance on the promise, (2) the promisee
acts reasonably in reliance on the promise, and (3) refusing to enforce the
promise would result in fraud or injustice. In the present case, Defendant
drew up the option agreement and knew that no consideration had been
given. Defendant was familiar with real estate contracts and knew the
option agreement was not a contract for sale of the land. Therefore,
Defendant is unable to show he acted reasonably in reliance on a promise
by Plaintiff.
3 The Court also notes that the promise is not made enforceable by
performance of certain acts. An option promise may be conditioned on
55 Berryman v. Kmoch
1 performance of certain acts, the performance of which would substitute for
consideration. However, in this case, the acts of Defendant in attempting
to find a buyer for the land do not make the promise enforceable because
Defendant was under no obligation to find a buyer and had made no
promise to purchase the land.

Discussion. To have a valid option contract there must be consideration. Without

consideration the offer to sell may be revoked at any time before it is accepted. At times it
may be possible to use promissory estoppel to substitute for consideration and limit the
revocability of the offer. However, for promissory estoppel to apply all of the elements
must be met, including reasonability of reliance on the promise.
56 Pop's Cones, Inc. v. Resorts International Hotel, Inc.
Pop's Cones, Inc. v. Resorts International Hotel, Inc.

Citation. 307 N.J. Super. 461, 704 A.2d 1321.

Brief Fact Summary. Plaintiff, Pop's Cones, Inc., is seeking damages from the
Defendant, Resorts International Hotel, Inc., for losses they claim resulted from reliance
on promises made by Defendant during lease negotiations.

Synopsis of Rule of Law. A plaintiff may survive a motion for summary judgment on a
promissory estoppel claim by presenting evidence allowing a reasonable jury to find that
a defendant made a promise with the expectation that a plaintiff would rely on that
promise and that a plaintiff did reasonably and detrimentally rely on a defendant's
promise.

Facts. In May or June of 1994, Plaintiff began discussions with defendant regarding the
possibility of Plaintiff relocating its business to a location owned by Defendant. The
parties specifically discussed a property that at the time was being leased by "The
Player's Club." Following the initial discussions, Defendant allowed Plaintiff to operate a
vending cart free of charge for the summer of 1994 to test how well the business might do
in that location. Plaintiff obtained permission from its franchisor for relocation of its
business and a representative of the franchisor later visited the Player's Club location with
representatives of Plaintiff Defendant. In August of 1994, Plaintiff drafted a proposal and
delivered it to Defendant. In late September 1994, Plaintiff twice contacted Defendant to
determine the status of their deal. Plaintiff requested that Defendant decide before
October 1, 1994, because Plaintiff would have to give notice to its current landlord.
During the second September call, Defendant advised Plaintiff that the deal would have
little difficulty going through and Plaintiff should give notice to its current landlord.
Relying on Defendant's statements Plaintiff gave notice and in October moved its
equipment into storage. Plaintiff also sent designs to its franchisor and retained an
attorney in preparation for moving to the new location.

In November, Defendant sent Plaintiff's attorney a proposed form of lease. The following
month Defendant sent a written offer but the letter included the language that it was not
intended to be binding. Plaintiff and Defendant met, but Defendant asked to postpone the
finalization of the lease until after the first of the next year. Plaintiff made several
attempts in January to contact Defendant regarding the status of the lease. Eventually
Defendant informed Plaintiff that the lease offer was withdrawn. Due in part to the
previous location having already been re-let, Plaintiff was unable to find a suitable
location and reopen until July. Plaintiff sued for damages resulting from their reliance on
Defendant's promise. The trial court granted Defendant's motion for summary judgment.
In the present case, Plaintiff is appealing the granting of summary judgment.

Issue. Can Plaintiff proceed with their suit to recover losses incurred from their reliance
on Defendant's statements?
Held. Yes. Plaintiff has met its prima facie case for promissory estoppel
57 Pop's Cones, Inc. v. Resorts International Hotel, Inc.
1 Promissory estoppel requires (1) a clear and definite promise (2) made
with the expectation that the promisee will rely on the promisee, (3)
reasonable reliance on the promise by the promisee, and (4) definite and
substantial detriment resulting from the reliance.

2 The Court discusses the strict clear and definite promise requirement in
Malaker and how later courts have relaxed that requirement. In Malaker,
the court held that an implied promise to lend money, but not a specified
amount, was not a clear and definite promise. The Malaker court looked
for an express promise and suggested that proof of most of the legal
elements of a promise must be provided for the promise to be clear and
definite. In this case, the court relaxes the clear and definite promise
requirement in Malaker.

3 The Court goes on to note that in the present case Plaintiff seeks
damages resulting from reliance on promises made during negotiations
and not enforcement of a contract making this case a better candidate for
relaxation of the requirement. The Restatement also supports the Court's
relaxation of the clear and definite requirement to a more "equitable
analysis designed to avoid injustice."

Discussion. Promissory estoppel requires a clear and definite promise, reasonable

expectation that the promisee will rely on the promise, reasonable and detrimental
reliance on the promise by the promisee. The requirement that the promise be clear and
definite may be relaxed in the interests of avoiding injustice
58 Princess Cruises, Inc. v. General Electric Co.
Princess Cruises, Inc. v. General Electric Co.

Citation. 143 F.3d 828 (4th Cir. 1998).

Brief Fact Summary. Plaintiff, Princess Cruises, Inc., entered into a contract with the
Defendant General Electric Co. for Defendant to perform inspection and repair services
on one of Plaintiff's ships. Plaintiff's purchase order and Defendant's price quotations
contain different terms and conditions. Defendant's terms and conditions limit
Defendant's liability and the type of damages that can be recovered from Defendant.

Synopsis of Rule of Law. A counteroffer acts as a rejection of the original offer. If the
counteroffer is accepted, the terms and conditions of the counteroffer apply.

Facts. Plaintiff requested that Defendant perform services and provide parts related to the
turbines of one of its ships. Defendant manufactured the turbines. Plaintiff created a
purchase order, which included a description of the services and a contract price of
$260,000. The terms and conditions were on the reverse side of the purchase order and
indicated that the purchase order was intended to be an offer. The terms and conditions
also indicated that the offer could be accepted by acknowledgement or performance, the
terms and conditions could not be unilaterally changed, and Defendant would warranty
workmanlike quality and fitness for intended use.

The same day the purchase order was received, Defendant faxed a fixed price quotation
containing a more detailed description of the work. The fixed price quotation also
included a list of parts and materials, an offered price of $201,888, and Defendant's terms
and conditions. Upon further review of the purchase order, Defendant realized it included
additional work not contemplated in the fixed price quotation. Defendant notified
Plaintiff of the error. Defendant later sent a final price quotation including an offer to
provide services, labor, and materials for $231,925 and Defendant's terms and conditions.
Defendant's terms and conditions rejected those in Plaintiff's purchase order, rejected
liquidated damages, limited Defendant's liability to repair or replacement, limited
Defendant's liability for any claims to the greater of $5,000 or the contract price, and also
disclaiming liability for consequential damages, lost profits, or lost revenues.

Plaintiff gave Defendant permission to make the repairs based on the final price quotation
during a telephone conversation between the parties. Defendant sent Plaintiff a
confirmation acknowledging receipt of Plaintiff's purchase order, restating the price from
the final price quotation, and indicating Defendant's terms and conditions were to govern
the contract.

After Plaintiff's ship was inspected, Defendant recommended that the rotor needed
cleaning and balancing. Plaintiff had to cancel a cruise due to the delays caused by the
repair. Plaintiff also alleges that continued problems caused further damage to the ship
and resulted in the cancellation of another cruise.
Issue. Do Plaintiff's terms and conditions govern the agreement between the parties?
59 Princess Cruises, Inc. v. General Electric Co.
Held. No. Plaintiff accepted Defendant's terms and conditions by accepting Defendant's
counteroffer.

1 Mixed maritime contracts for goods and services are treated the same as
land-based mixed contracts. Because this case involves primarily services
and not goods, common law doctrines, not the UCC, applies.

2 Under the common law, if an acceptance varies from the offer's terms,
the acceptance is a counteroffer and operates as a rejection of the original
offer. Defendant's final price quotation was a counteroffer. By giving
Defendant permission to proceed with the inspection and repairs, Plaintiff
accepted Defendant's final price quotation. In addition, Plaintiff did not
object to Defendant's letter of confirmation and paid the amount of the
final price quotation, not the purchase order. Therefore, the Court holds
that Defendant's terms and conditions included in the final price quote
govern the liability and damages under the parties' contract.

Discussion. In the present case, the Court found that Plaintiff accepted Defendant's
counteroffer through both words and actions. Therefore, the terms and conditions
contained in Defendant's counteroffer apply. It is important to note that this is the result
under common law. If the UCC had applied, the analysis would be different.
60 Brown Machine, Inc. v. Hercules, Inc.
Brown Machine, Inc. v. Hercules, Inc.

Citation. 770 S.W.2d 416 (1989).

Brief Fact Summary. Plaintiff, Brown Machine, Inc. sold a trim press to Defendant,
Hercules, Inc. An indemnity provision was included in Plaintiff's acknowledgement of
order form, but not in Defendant's purchase order. Plaintiff is bringing the present cause
of action to enforce the indemnity provision.

Synopsis of Rule of Law. Under the UCC, additional terms become part of a contract
between merchants unless the offer expressly limits acceptance to the terms included in
the offer, the additional terms materially alter the contract, or notification of objection to
the additional terms has been given or is given within a reasonable time.

Facts. Plaintiff sold Defendant a trim press. At the beginning of negotiations for the
purchase of the trim press, Defendant requested a quote for the trim press from Plaintiff.
Plaintiff submitted a proposal to Defendant, which included an indemnity provision.
Defendant called Plaintiff and indicated that a purchase order had been prepared, but that
Defendant objected to the deposit. Plaintiff indicated that the deposit could not be
waived.

The purchase order was for a trim press with the specifications of the quote with the
exception that "Standard regular forward trim" should be changes to "Reverse trim." The
purchase order expressly limited acceptance to the terms included in the purchase order
and expressly rejected any terms not included. The purchase order provided that
acceptance of the terms of the purchase order could be made by accepting the order,
delivering the press, or providing services call for in the purchase order. The purchase
order did not contain an indemnity provision. Two copies of the purchase order were sent
to Plaintiff, one to keep and one to return. Plaintiff never returned the acknowledgement
copy.

Plaintiff then sent an invoice to Defendant requesting the deposit and an order
acknowledgement that included the same provisions as the proposal, including the
indemnity provision. The order acknowledgement also included a provision requiring
notification within 7 days if the terms and conditions were not consistent with
Defendant's understanding. Defendant responded to the order acknowledgement by again
requesting that "Standard regular forward trim" be replaced with "Reverse trim", but
stating that all other specifications were correct. Defendant never paid the deposit, but
Plaintiff shipped the trim press and Defendant paid the full purchase price.

An employee of Defendant was injured while operating the press and sued Plaintiff.
Plaintiff demanded that Defendant defend the suit and Defendant refused. Plaintiff settled
the suit and initiated this action for indemnification.

Issue. Was the indemnification provision included in the purchase contract?

61 Brown Machine, Inc. v. Hercules, Inc.
1 Was Plaintiff's acknowledgement a counter offer or an acceptance with
different or additional terms?

2 Are the different terms included in Plaintiff's acknowledgement part of

the contract?

Held. No. The indemnification provision did not become part of the contract between the
parties.

1 Generally a price quote is not an offer, but an invitation to enter into

negotiations. In this case, the Court found that Defendant could not
reasonably have determined that Plaintiff's quote was an offer. Plaintiff's
proposal expressly indicated that it was not binding until Plaintiff
acknowledged the acceptance. In addition, were it an offer, the terms
indicated that it expired in 30 day and Defendant did not accept prior to
the expiration of 30 days.

2 The Court determines that it is the purchase order, and not the price
quote, that constitutes the offer.

3 Next, the Court addresses whether Plaintiff's acknowledgement was an

acceptance or a counter offer. To be a counter offer, the acknowledgement
must be expressly conditional and clearly notify the offeror that the offeree
will not proceed with the transaction unless the conditions of the counter
offer are met. The Court does not find any evidence of Plaintiff's
unwillingness to proceed with the transaction, and determines that the
acknowledgement constitutes an acceptance with additional or different
terms. Under the UCC, additional terms become part of a contract between
merchants unless (1) the offer expressly limits acceptance to the offer's
terms, (2) the additional terms materially alter the contract, or (3)
notification of objection to the additional terms has been given or is given
in a reasonable time.

4 Defendant's purchase order (the offer) expressly limits acceptance to the

terms included in the purchase order. In addition, the inclusion of the
indemnity provision without Defendant's express consent would materially
alter the agreement between the parties. The Court also notes that
Defendant's response to Plaintiff's acknowledgement of order that all other
specifications were correct was not an assent to the additional terms.
Therefore, the indemnity provision did not become part of the contract
between the parties.

Discussion. In the present case, the indemnification clause was an additional term not
included in the contract because the offer expressly limited acceptance to the terms of the
offer and inclusion of the indemnity provision without express consent of Defendant
would materially alter the contract.
62 Dale R. Horning Co. v. Falconer Glass Industries, Inc.
Dale R. Horning Co. v. Falconer Glass Industries, Inc.

Citation. 730 F. Supp. 962 (S.D. Ind. 1990).

Brief Fact Summary. Plaintiff Dale R. Horning Co. purchased defective glass products
from Defendant Falconer Glass Industries, Inc. resulting in additional costs to Plaintiff
for the replacement of the defective products. Plaintiff initiated this cause of action to
recover consequential damages incurred from the replacement of the defective products
and the resulting delay. Defendant included a provision disclaiming liability for
consequential damages on the back of its form.

Synopsis of Rule of Law. An additional term limiting liability for consequential damages
in an agreement between merchants will not be enforced when enforcement would result
in hardship to the non-assenting party.

Facts. Plaintiff was a subcontractor on a construction project where time was of the
essence. If Plaintiff failed to meet deadlines of the project, the result would be daily fines
and possible termination. Plaintiff ordered a glass product from Defendant over the
telephone. During the telephone conversation, no mention was made of limiting remedies
or disclaiming warranties. Defendant had reason to know at the time the order was made
of Plaintiff's general or particular requirements. The day after the telephone conversation,
Plaintiff sent Defendant a confirming order form. The form contained nothing about
warranties or damages, but did include a handwritten notation that the shipment was on
an "as needed" basis. Defendant also sent a form to Plaintiff at the same time. The form
indicated that the product was due "3rd Qtr. 1986" and that four weeks was the
manufacturing time. The reverse side of Defendant's form also limited Plaintiff's remedy
for defective goods to replacement and disclaimed liability for "special, direct, indirect,
incidental or consequential damages." The language on the reverse side was not in a
larger print than the rest of the terms and was not in capital letters, underlined or bold-
faced.

Once Plaintiff informed Defendant of the specifications, Defendant delivered a defective

product to Plaintiff. Plaintiff notified Defendant of the defects and attempted to correct
the defects according to Defendant's instructions. Plaintiff temporarily installed
Defendant's product to avoid incurring additional costs. Had this first shipment been
without defect, Plaintiff would have completed the work on time and without any
additional cost.

An officer of Plaintiff informed Defendant's manufacturing manager (Carmen) that

Defendant would be liable for Plaintiff's additional costs and Carmen did not object.
Plaintiff's office again informed Carmen that Defendant would be liable when Carmen
came to inspect the replacement shipment. Later, Plaintiff's manager informed
Defendant's regional sales representative that Plaintiff expected Defendant to pay the
additional costs. The regional sales representative agreed that Defendant should be
responsible but asked that Plaintiff "take it easy on us."
63 Dale R. Horning Co. v. Falconer Glass Industries, Inc.
Defendant sent several corrective shipments. Plaintiff incurred the costs of preparing and
installing the replacement shipments. Plaintiff was unaware of the terms and conditions
on the reverse side of Defendant's form. However, Plaintiff was aware that Defendant and
other suppliers do place terms and conditions on the reverse side of their forms. In the
commercial glass industry, restrictive warranties are common practice, but suppliers often
cover some or all of additional costs resulting from a defective product.

Issue. Is the additional term disclaiming Defendant's liability for consequential damages
part of the contract between the parties?

Held. No. Defendant's provision disclaiming liability for consequential damages is not
part of the contract between the parties.

1 In a contract between merchants additional terms are included unless

they materially alter the agreement between the parties. If the inclusion of
a term without express awareness of the other party would result in
surprise or hardship, the term is said to materially alter the agreement.
Courts are split on whether a provision limiting consequential damages
materially alters a contract. In the present case, the Court focuses on
whether the inclusion would result in surprise or hardship, not whether the
provision is reasonable.

2 In looking at whether the provision materially altered the agreement

based on surprise to Plaintiff, the Court looks at both a subjective and
objective standard. Subjectively, Plaintiff was not aware of the provision
on the back of Defendant's form. However, objectively, Plaintiff was
aware that such provisions do appear on the back of supplier forms. The
Court determined that because Plaintiff should anticipate such provisions,
the provision does not materially alter the contract under the surprise
aspect.

3 In looking at hardship, the Court focuses on whether enforcing the

provision would result in "substantial economic hardship" to Plaintiff.
Under the fact of the present case, where Defendant knew of Plaintiff's
requirements and potential liability for delay in completing the work, the
Court applies a presumption that Plaintiff can recover consequential
damages to avoid hardship.

4 The Court also notes that the limitation of liability for consequential
damages was not mentioned in the oral agreement or later negotiated, but
was instead inserted in fine print on the back of Defendant's form.

Discussion. In the present case, the additional term disclaiming Defendant's liability for
consequential damages was not part of the contract between the parties. The Court
reasoned that to include this type of provision, located in fine print on the back of the
form, and would result in hardship to Plaintiff.
64 Hill v. Gateway 2000, Inc.
Hill v. Gateway 2000, Inc.

Citation. 105 F.3d 1147.

Brief Fact Summary. Plaintiff Hill, purchased a computer from Defendant, Gateway
2000, Inc. Included in the box with the computer was a list of terms. The list of terms
included a provision requiring that disputes be resolved exclusively through final and
binding arbitration.

Synopsis of Rule of Law. Additional terms included in a box shipped by the seller do
become part of the contract between the parties, even if the purchaser is unaware of the
additional terms and the purchaser's acceptance of the terms is by not returning the item
purchased.

Facts. Plaintiff purchased a computer from Defendant by placing an order over the
phone. Defendant included a list of terms that become part of the contract if the purchaser
does not return the computer within thirty days. The terms were not read to Plaintiff over
the phone. The list of terms sent to Plaintiff included an arbitration provision. The
arbitration provision required that all disputes be resolved through arbitration.

Issue. Did the arbitration provision become part of the contract between the parties?

Held. Yes. The arbitration provision became part of the contract. The Court states that a
contract can be effective even if it is not read. Further, the Court warns that those who
accept without reading the terms of a contract assume the risk that the terms will be
unfavorable. As the master of the offer, the Defendant could limit the actions required for
acceptance. Therefore, the Court finds that even though Plaintiff did not read the terms,
Plaintiff nonetheless accepted the terms by not returning the computer within thirty days.

Discussion. In the present case, the arbitration provision included in the list of terms sent
with the computer became part of the contract between the parties when Plaintiff did not
return the computer within thirty days, even though Plaintiff had not read the provision.
65 Klocek v. Gateway, Inc.
Klocek v. Gateway, Inc.

Citation. 104 F.Supp.2d 1332 (D. Kan. 2000).

Brief Fact Summary. Plaintiff Klocek, purchased a computer from Defendant Gateway,
Inc. Inside the box containing the instruction manuals was a copy of Defendant's
Standard Terms and Conditions Agreement. The agreement stated that it is accepted by
the purchaser if the purchaser keeps the computer longer than five days. One of the
provisions in Defendant's agreement requires arbitration.

Synopsis of Rule of Law. Terms received with a product do not become part of the
contract unless the non-merchant buyer expressly agrees to them.

Facts. Defendant includes a copy of its Standard Terms and Conditions Agreement with
every computer it sells in the box containing the computer battery power cable and
instruction manuals. On top of the first page of Defendant's agreement is a notice that the
consumer accepts the terms and conditions by keeping the computer for more than five
days. The notice is located in a printed box, separate from the other provisions and is in
emphasized type. The terms and conditions include a provision requiring disputes to be
resolved through final and binding arbitration in Chicago.

Issue. Did the arbitration provision become part of the contract?

Held. No. The arbitration provision did not become part of the contract.

1 The UCC applies because the contract is for the sale of goods.

2 The Court characterizes Defendant's agreement as an acceptance.

Because the agreement does not condition the acceptance on Plaintiff's
assent to the terms, it is not a counteroffer.

3 Because Plaintiff is not a merchant, Plaintiff has to expressly agree to the

additional terms for them to become a part of the contract. The Court
found that the five-day acceptance of terms did not constitute express
agreement by Plaintiff.

4 The Court holds that the arbitration provision did not become part of the
contract because Plaintiff did not expressly agree to the terms.

Discussion. In the present case, Plaintiff, not a merchant, did not expressly agree to the
arbitration provision included in the box with the computer Plaintiff purchased from
Defendant. Because Plaintiff did not expressly agree to it, the provision did not become
part of the contract between the parties.
66 Walker v. Keith
Walker v. Keith

Citation. 382 S.W.2d 198 (1964).

Brief Fact Summary. Plaintiff lessee, entered into a 10 year lease agreement with the
Defendant lessor. The lease agreement included an option to renew the lease for an
additional ten years, but did not set the rent amount for the additional ten years.

Synopsis of Rule of Law. Under the traditional approach, there must be substantial
certainty as to the material terms for an agreement to be enforceable. Courts using the
traditional approach will not enforce an agreement if a material term is indefinite or
ambiguous.

Facts. Plaintiff leased a small lot from Defendant for a ten year term. The lease
agreement between the parties provided an option to renew for an additional ten years.
The option included the same terms as the original lease, but did not set an amount for
rent. The lease option provided that the rent would be set "in such amount as shall
actually be agreed upon by the lessors and the lessee with the monthly rental fixed on the
comparative basis of rental values as of the date of renewal with rental values at this time
reflected by the comparative business conditions of the two periods."

Plaintiff gave proper notice of renewal, but the parties were unable to reach an agreement
as to the amount of rent. The trial court enforced the option and set rent at $125 per
month.

Issue. Can Plaintiff enforce the option to renew the lease?

Held. No. The option is unenforceable because the provision for setting the rent is
indefinite and ambiguous.

1 In the present case, the Court applies the traditional approach. Under the
traditional approach, courts are reluctant to complete an incomplete
agreement made by the parties. This is based on the concept that
substantial certainty with regard to the material terms is required for a
meeting of the parties' minds to occur. The traditional approach requires
that an option to renew a lease set the amount of rent or provide a clear
method for determining the rent. The Court determines that the provision
in the lease renewal option does not clearly establish a method for
determining the amount of rent; therefore, the provision is too vague to
enforce.

2 The Court does not hold that an option to renew must provide a dollar
amount for rent to be enforceable. A definite objective standard would be
sufficient for the court. For example, if the parties had agreed on a specific
method, computation, formula, or even arbitration to determine the rent,
the court would have enforced the option.
67 Walker v. Keith
1 The Court characterizes the provision as an unenforceable agreement to
agree. Because the parties have failed to agree as to a rent amount for the
renewal, the court is unwilling to enforce a "nonagreement." The Court
goes on to criticize courts that are willing to insert such terms as
"paternalistic."

Discussion. Under the traditional approach, courts will not complete an incomplete
agreement or agreement to agree. For an option to renew a lease to be enforceable under
the traditional approach, the parties must agree to the amount of rent or clearly establish a
method for determining the rent.
68 Quake Construction, Inc. v. American Airlines, Inc.
Quake Construction, Inc. v. American Airlines, Inc.

Citation. 141 Ill.2d 281, 152 Ill. Dec. 308, 565 N.E.2d 990 (1990).

Brief Fact Summary. The Defendants, American Airlines, Inc. (hereinafter Defendant)
and Jones Brothers Construction Corporation (hereinafter Jones)

Synopsis of Rule of Law. Parol evidence of intent may be introduced to show intent
when a writing is ambiguous.

Facts. The Defendant was expanding its facilities at O'Hare International Airport. Jones
was hired by the Defendant to prepare bid specifications, accept bids, and award
construction contracts. The Plaintiff submitted a bid to Jones. Jones notified the Plaintiff
orally that the Plaintiff had been awarded the contract. The Plaintiff was informed that a
written contract prepared by Jones would be received shortly. To aid the Plaintiff in
securing subcontractors, Jones sent the Plaintiff a letter of intent. The letter of intent
indicated that a written contract would be prepared and that Jones could cancel the letter
of intent if the parties failed to agree on a fully executed subcontract agreement.

The Plaintiff and Jones discussed changes to the contract and Jones again told the
Plaintiff that a written contract would be drawn up. At a meeting with the Plaintiff's
subcontractors and government officials, Jones announced that the Plaintiff would be the
general contractor for the project. Immediately following the meeting, the Defendant told
the Plaintiff that their involvement with the expansion was terminated.

Issue. Can the parties introduce parol evidence of intent

Held. Yes. Because the letter is ambiguous, parol evidence of intent may be introduced.

1 Letters of intent may be enforceable if the parties intend them to be

binding.

2 If a writing is not ambiguous, the court may only look at the writing.
However, if the writing is ambiguous, parol evidence may be introduced to
show the intent of the parties.

3 To determine whether parties intended to reduce their agreement to

writing the court considers: whether the type of agreement is one generally
put in writing, the amount of details the agreement contains, the amount of
money the agreement involves, whether a formal writing is required for
full expression, and whether a formal written document was contemplated
at the end of negotiations.

4 The Defendant argues that the letter did not contain all of the terms of a
construction contract and indicated that some of the terms had yet to be
negotiated. Alternatively, the Defendant argues that even if all of the terms
69 Quake Construction, Inc. v. American Airlines, Inc.
1 necessary are present, the cancellation clause prevents an inference that
the parties intended to be bound

2 The court viewed the fact that work was to begin just days after the letter
of intent was sent, as an indication that parties intended to be bound. In
addition, the court points out that the cancellation clause would be
irrelevant if the letter was unenforceable. Also, the letter indicated that the
contract had been awarded and that the Plaintiff was authorized to begin
work.

3 The court held that the letter in the present case was ambiguous. Because
the letter is ambiguous, the case is remanded so as to allow parol evidence
of intent to be presented.

Concurrence. The concurring opinion agrees that dismissal was unwarranted, but is less
optimistic about the Plaintiff's chances of recovery. Unlike the majority, the concurrence
does not think the cancellation clause is evidence of intent to be bound.

Discussion. In the present case, because the court found the letter of intent to be
ambiguous, the court remands the case so parol evidence of intent may be considered.
70

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71 Crabtree v. Elizabeth Arden Sales Corp.
Crabtree v. Elizabeth Arden Sales Corp.

Citation. 305 N.Y. 48, 110 N.E.2d 551 (1953).

Brief Fact Summary. Plaintiff Crabtree alleges that Defendant Elizabeth Arden Sales
Corp. breached a two year employment contract.

Synopsis of Rule of Law. More than one document may be linked together either
expressly or impliedly by the subject matter and occasion to supply a memo to satisfy the
statute of frauds.

Facts. Plaintiff sought a three year employment contract with Defendant. Plaintiff was
leaving a secure job to enter a new field and wanted the agreement to be for a definite
term. Defendant instead offered Plaintiff a two year employment contract with an annual
salary of $20,000 for the first six months, $25,000 for the next six months, and $30,000
for the second year. Plaintiff called the offer "interesting." Defendant had the offer written
down on a telephone order.

A few days later, Plaintiff accepted the offer. Plaintiff began working and received the
first increase in income after six months, but did not receive the subsequent increase.
Defendant's comptroller and general manager each signed a payroll change card to
attempt to remedy the situation. However, the increase was not approved and Plaintiff left
his employment with Defendant and brought this cause of action for breach of contract.

Issue. Was the lower court justified in finding that the contract satisfied the statute of
frauds?

Held. Yes. The lower court was justified in finding that the contract satisfied the statute
of frauds

1 Because the contract cannot be performed in under a year, it falls under

the statute of frauds. If a contract falls under the statute of frauds it must
have a sufficient memo that is signed with the intent to authenticate the
terms and evidences the terms of the contract. The memo does not have to
be one document. It may be multiple documents if they are linked together
expressly or internally by evidence of subject matter and occasion.

2 The Court finds in this case that the memo written on the telephone
order, the payroll change form initialed by Defendant's general manager,
and the paper signed by Defendant's comptroller all refer to the same
transaction on their face. The Court holds that the lower court was justified
in finding that the three documents comprised a sufficient memo.

Discussion. In the present case, the trial court was justified in finding a sufficient memo
to satisfy the statute of frauds by linking the three documents together.
72 Winternitz v. Summit Hills Joint Venture
Winternitz v. Summit Hills Joint Venture

Citation. M.D. App. 16, 532 A.2d 1089 (1987).

Brief Fact Summary. Appellant Winternitz was a tenant of Appellee Summit Hills Joint
Venture. Appellant entered into an agreement to sell his business under the belief that he
could transfer his lease to the buyer. Appellee revoked permission to transfer the lease.

Synopsis of Rule of Law. Part performance applies when specific performance is sought,
but not when the party is seeking damages.

Facts. Appellant operated a pharmacy. On January 31, 1983, Appellant's six year lease
expired. The lease provided that if Appellant remained in possession, Appellant would
become a month-to-month tenant and the rent would continue to be $1,658. Either
Appellant or Appellee could terminate the month-to-month tenancy with 30 days written
notice.

In October of 1982, Appellant discussed renewal of the lease with a partner and officer of
Appellee and asked if the lease could be transferred. Appellee agreed to renew the lease
and indicated there would be no objection to assignment to a financially sound assignee.
In mid-January of 1983, Appellee's property manager delivered to Appellant a proposal
for a two year lease with an eight year renewal conditioned on renovations to be made by
Appellant.

After clarifying the conditions, Appellant asked when the lease could be signed.
Appellant received a copy with the word SAMPLE printed on the first and last pages.
Although both Appellant and Appellee's property manager were authorized to sign the
lease, the property manager told Appellant that the lease would be signed at some point.
However, the property manager instructed Appellant to pay the new rent.

Believing that the lease had been renewed and could be assigned, Appellant began trying
to sell his business. Appellant soon found a buyer and on February 2, 1983, sold the
business to the Suh family for $70,000. The contract for the sale of the business
mentioned the assumption of the lease. In addition, the contract included a provision
making the contract contingent upon the seller procuring the lease.

The Suhs met with Appellee's property manager to discuss their financial situation. The
property manager stated that she did not foresee any problems. After a few days,
Appellant contacted a partner and officer of Appellee. Later, the partner and officer
contacted Appellant and told him that Appellee would negotiate their own lease and
Appellant would no longer be able to transfer the lease. Appellant was informed that he
would be refunded the difference in rent and Appellee gave him a thirty-day eviction
notice. Because of this, Appellant had to renegotiate the contract with the Suhs for a new
price of only $15,000.

Issue. Did the lower court err by nullifying the jury verdicts?
73 Winternitz v. Summit Hills Joint Venture
1 Did the lower court err by nullifying the jury verdict on the breach of
contract claim?

2 Did the lower court err by nullifying the jury verdict on the malicious
interference with contractual relationship claim?

Held. The court erred in nullifying the jury verdict on the malicious interference with
contractual relationship claim, but did not err in nullifying the jury verdict on the breach
of contract claim.

1 A lease for a term of one year or more falls under the statute of frauds
and must be in writing and signed by the party against whom enforcement
is sought. Appellant argues that part performance should excuse
compliance with the statute of frauds. The Court rejects this argument
because part performance applies when specific performance is sought,
and in this case Appellant is seeking damages. Because the statute of
frauds does apply and the renewal is not enforceable due to lack of a
writing signed by Appellee, the lower court did not err in nullifying the
jury's verdict.

2 Malicious interference with contractual relationship requires improper

interference with a contract between another and a third party by
preventing or burdening performance of the contract. The Court finds that
there is sufficient evidence of Appellee's agreement to allow renewal and
assignment of the lease, Appellee's breach of that agreement, and that the
breach of that agreement was malicious and intended to injure Appellant.
In addition the Court notes that a malicious interference with contractual
relationship claim may be based on a contract unenforceable under the
statute of frauds. Therefore, the Court holds that the lower court erred by
nullifying the jury verdict on the malicious interference with contractual
relationship claim.

Discussion. In the present case, the Court did not allow Appellant to use part
performance to bring his breach of contract claim because he was seeking damages and
not specific performance. However, the Court held that the lower court erred in nullifying
the jury verdict on the malicious interference with contractual relationship claim because
the claim could be brought even though the contract was unenforceable under the statute
of frauds and Appellant had presented sufficient evidence to support the jury's finding.
74 Alaska Democratic Party V. Rice
Alaska Democratic Party V. Rice

Citation. 934 P.2d 1313 (1997).

Brief Fact Summary. Plaintiff Rice quit her job and relocated in reliance on a promise of
employment made by Defendant, the Alaska Democratic Party. After moving to Alaska,
Plaintiff was eventually informed that she did not have a job with Defendant.

Synopsis of Rule of Law. A claim for promissory estoppel may be brought in an

employment situation, even if the agreement is unenforceable under the statute of frauds.

Facts. Plaintiff was contacted by Defendant's potential chair regarding a position with
Defendant as executive director. After becoming Defendant's chair, the decision to hire
Plaintiff was confirmed in May, 1992. The terms were to be $36,000 a year for two years
with about $4,000 in fringe benefits and an additional two years if the chair was
reelected. In August, 1992, Plaintiff accepted a position working on the Gore vice-
presidential campaign. A month or two later, Plaintiff accepted the job with Defendant. In
November, Plaintiff resigned her position with the Gore campaign, although she could
have continued there indefinitely, and moved to Alaska. No written contract was entered
into between Plaintiff and Defendant.

In February, 1993, the executive committee informed Defendant's chair that Plaintiff
could not be hired as executive director. Plaintiff claims that even after this meeting
Defendant's chair continued to indicate that she had the job. Later, however, Plaintiff was
informed that she did not have the job.

Issue. Did the lower court err in its awards to Plaintiff on the promissory estoppel and
misrepresentation claims?

Held. No. The lower court did not err in its awards based on either claim.

1 The Court holds that an oral contract falling under the statute of frauds
may be enforceable under promissory estoppel. The Court finds that the
jury reasonably could have found that Defendant should have expected
Plaintiff to rely on the promise of employment, that Plaintiff left her job
and relocated to another state in reliance on Defendant's promise, that her
reliance was both reasonable and detrimental, and that injustice would
only be avoided by enforcing Defendant's promise.

2 The lower court did not err in omitting "definite and substantial" from
the jury instruction because the jury instructions when read as a whole
required the jury to consider the definite and substantial character of
Plaintiff's actions.
3 With regard to the agency issues, the Court found that the evidence
supported the finding of general authority, which made a finding of
specific authority to hire Plaintiff unnecessary. Further, the issue of
75 Alaska Democratic Party V. Rice
1 whether there was implied or apparent authority properly went to the jury.
Because the question of whether there was authority to hire for a term of
years rather than at will was not raised at trial, the Court considers it to
have been waived.

2 Defendant argues that because the offer was made before the chair
assumed that position; the offer cannot be the basis for the
misrepresentation claim. The Court rejects that argument because the chair
had a stake in offering the position to Plaintiff and did not make the offer
gratuitously.

3 The Court also notes that the jury's determination of what amount was
necessary to avoid injustice did not result in an excessive award on the
promissory estoppel claim. Further, the Court notes that the
misrepresentation award was also not excessive because the total award
was reduced to reflect only lost wages and benefits.

Discussion. Because the jury had evidence to support its verdict on both claims, the
Court finds that the judgments in favor of Plaintiff were not in error. The Court rejects the
argument that promissory estoppel should not apply because the agreement is
unenforceable under the statute of frauds. Also, the court rejects Defendant's arguments
that the damage awards were excessive.
76 Buffaloe v. Hart
Buffaloe v. Hart

Citation. 114 N.C. App. 52, 441 S.E.2d 172 (1994).

Brief Fact Summary. Plaintiff Buffaloe, rented barns from Defendant Hart. Plaintiff
attempted to purchase the barns from Defendant by making an installment payment.
Defendant returned the payment and sold the barns to others.

Synopsis of Rule of Law. A check is not a sufficient writing to satisfy the statute of
frauds if the party against whom enforcement is sought does not sign it.

Facts. Plaintiff, a tobacco farmer, rented tobacco and barns from Defendant during the
1988 farming year. The parties did not put the agreement in writing. Plaintiff had
purchased equipment from Defendant and their transactions had never been put in
writing. Pursuant to the agreement, Defendant was to provide insurance for the barns in
1988. In October of 1988, Plaintiff paid the rent for the barns and tobacco.

Plaintiff then began attempts to purchase the barns from Defendant. Plaintiff offered to
pay $20,000 in annual $5,000 installments but did not offer to pay any interest.
Defendant accepted the offer. As in their prior dealings, the parties did not put their
agreement in writing, but did shake hands. Plaintiff already had possession of the barns
under the rental agreement and did not move the barns because Plaintiff had agreed to
farm Defendant's land in 1989 with the rented tobacco.

Plaintiff applied for a loan to pay for the barns in January and indicated to Defendant that
he would pay for the barns when the loan came through, but the loan was denied. The
parities then reconfirmed that the installments were to be paid by Plaintiff. Plaintiff was
unable to obtain insurance coverage for the barns. Defendant agreed to provide insurance
for 1989 if Plaintiff reimbursed for the cost, which he did in October of 1989.

Plaintiff presented evidence that he told multiple people of his purchase of the barns, paid
for repairs to the barns, and made arrangements to sell the barns. Defendant claims the
evidence shows that Plaintiff made a new deal to purchase the barns with the loan, a deal
which fell through when Plaintiff was unable to get the loan. Further, Defendant says the
$5,000 check was left at Defendant's home by Plaintiff to entice Defendant to sell the
barns for the previous installment agreement.

Plaintiff placed an advertisement for the sale of the barns, and received offers from
several people. Defendant asked Plaintiff to "straighten up," which Plaintiff agreed to in
the next few days and indicated that he was selling the barns. Defendant responded that it
would "be fine." Plaintiff wrote a check to Defendant for the monthly installment and
indicated on the check that it was in payment for the barns. Defendant offered Plaintiff a
receipt, but Plaintiff indicated that the check would operate as the receipt.

The following day, Defendant called Plaintiff to tell him that the barns were already sold
and would not be sold to him. Plaintiff received the check submitted in payment back
77 Buffaloe v. Hart
from Defendant, but it was torn. Plaintiff later learned that Defendant sold the barns to
the same parties Plaintiff was to sell them to.

Issue. Did the jury err in enforcing the contract?

Held. No. The Court did not err in enforcing the contract.

1 Because the sale of the barns involves the sale of goods for at least $500,
the agreement falls under the statute of frauds provision in the UCC. A
check may satisfy the requirements of the statute of frauds if it contains
sufficient writing to indicate the contract of sale, is signed by the party
against whom enforcement is sought, and indicates quantity. Because
Defendant did not sign the check, it does not satisfy the requirements of
the statute of frauds.

2 Plaintiff argues that even though it does not satisfy the statute of frauds,
the agreement should be enforced under the doctrine of part performance.
The Court determines there is evidence whereby a jury could determine
that the agreement is enforceable under part performance. Therefore, the
Court upholds the jury verdict.

Discussion. Although the contract did not satisfy the statute of frauds, it was nonetheless
enforceable under the doctrine of part performance.
78 Bazak International Corp. v. Mast Industries, Inc.
Bazak International Corp. v. Mast Industries, Inc.

Citation. 73 N.Y.2d 113, 538 N.Y.S.2d 503, 535 N.E.2d 633 (1989).

Brief Fact Summary. Plaintiff, Bazak International Corp., and Defendant, Mast
Industries, Inc., entered in to an oral agreement whereby Defendant agreed to sell close
out textiles to Plaintiff. Plaintiff sent purchase orders, but Defendant never delivered the
textiles.

Synopsis of Rule of Law. Explicit words of confirmation are not required under the
merchant exception to the UCC's statute of frauds.

Facts. Defendant approached Plaintiff with an opportunity to purchase close out textiles.
The parties orally negotiated all of the terms except price. The next day the parties agreed
to a price of $103, 330. Defendant indicated that Plaintiff would receive written invoices
the next day and that the ordered textiles would be delivered shortly. No invoices arrived,
but Defendant told Plaintiff that the invoices were on their way.

Later, Plaintiff, upon request of Defendant, sent five purchase orders to Defendant. The
same day, Plaintiff received written confirmation that Defendant received the purchase
orders. No objection to the terms was made. Defendant never delivered the textiles.

The first four of Plaintiff's purchase orders are separate orders, but the fifth is a
summarization of all of the orders and provides the price. The orders included a printed
disclaimer that they are only offers and that they are not a contract unless accepted in
writing, but the disclaimer was written in terms of Plaintiff being the seller. Plaintiff
signed the forms, but Defendant did not sign them.

Issue. Do the documents qualify as confirmatory writings within the merchant exception
to the statute of frauds?

Held. Yes. The documents meet the requirements of the merchant exception to the UCC's
statute of frauds.

1 Because this case involves the sale of goods for at least $500, it falls
under the statute of frauds provision in the UCC. However, there is a
merchant exception to the UCC's statute of frauds provision. The merchant
exception allows enforcement of the contract when the contract is between
two merchants and a writing confirming the contract, sufficient to bind the
sender, is received with reason to know of its contents and is not objected
to in writing within ten days.

2 Defendant argues that for the merchant exception to apply, the alleged
confirmatory writing must be held to the higher standard of requiring
explicit words of confirmation. However, the Court disagrees finding that
the requirement that the writing be sufficient to bind the sender an
adequate safeguard.
79 Bazak International Corp. v. Mast Industries, Inc.
1 The Court does not find that the disclaimer on the form prevents it from
being a confirmatory writing because the disclaimer clearly indicates it is
to apply to situations where Plaintiff is the seller, and not the buyer.

2 The Court holds that the documents meet all the elements of the
merchant exception; therefore, the Court reversed both motions to dismiss
granted by the lower court.

Dissent. The dissent is concerned that not requiring explicit words of confirmation will
unfairly burden merchant sellers. However, the dissenting opinion does not think the
court even needs to address this issue in the current case because the plain reading of the
purchase orders indicates that they are offers. The dissent argues that setting aside the
language indicating the purchase orders are offers, the remaining language is ambiguous.
Also, the dissent notes that Plaintiff never indicated to Defendant that the disclaimer on
the purchase orders should be disregarded.

Discussion. In the present case, the Court found that the documents met the requirements
for confirmatory writings under the merchant exception. The Court did not require that
the documents contain explicit words of confirmation. Because the merchant exception
applied, the Court allowed Plaintiff to proceed with the breach of contract and fraud
claims.
80

CHAPTER V. The
Meaning Of The
Agreement: Principles Of
Interpretation And The
Parol Evidence Rule
81 Joyner v. Adams
Joyner v. Adams

Citation. 87 N.C. App. 570, 361 S.E.2d 902 (1987).

Brief Fact Summary. Plaintiff Joyner leased property to Defendant Adams. The lease
provided for suspension of a rent increase for a specified time if there was complete
development of the subdivision during that time.

Synopsis of Rule of Law. The maxim for construing an agreement against the drafter
applies to contract construction, but not contract interpretation.

Facts. Plaintiff leased property to Brown. The property was to be subdivided and the rent
would increase over the term of the lease. In 1975, Brown had some financial difficulties
so Defendant was substituted. The rent increase was suspended for a time to allow
Defendant to subdivide the property. Defendant was to complete the subdivision during
the suspension of the rate increase. If the subdivision was not completed, Defendant
would be liable for the rent increases that would have occurred during the suspension. At
the end of the suspension, all of the lots but one had buildings and separate lot leases. The
remaining lot had been graded, had water and sewer lines, and all driveways and roads
leading to the lot were built. The parties disagree as to whether Defendant met the
subdivision requirement of completed development for suspending the lease.

Issue. Should the contract be construed against Plaintiff as the drafter?

Held. No. The contract should not be construed against Plaintiff as the drafter.

1 The lower court came to its decision by applying the maxim of

construing ambiguous terms against the drafter. The Court states that this
is a rule of contract construction and does not apply to interpretation. The
Court further notes that it is unclear whether Plaintiff was in fact the
drafter of the provision.

2 The Court instructs that on remand, the trial court should apply Plaintiff's
meaning if Defendant had reason to know of Plaintiff's meaning and
Plaintiff did not have reason to know of Defendant's meaning. If such a
finding is not made, the Court instructs the trial court that Plaintiff's claim
must fail.

Discussion. In the present case, the Court held that the maxim construing a contract
provision against the drafter was not properly applied for two reasons. First, the maxim
applies to contract construction, not contract interpretation. Second, it is unclear whether
Plaintiff actually drafted the provision.
82 Frigaliment Importing Co. v. B.N.S. International Sales Corp.
Frigaliment Importing Co. v. B.N.S. International Sales Corp.

Citation. 190 F. Supp. 116 (S.D.N.Y. 1960).

Brief Fact Summary. Defendant B.N.S. International Sales Corp. contracted to sell
chicken to Plaintiff, Frigaliment Importing Co. Defendant sent chicken complying with
the weight requirements of the contract. Plaintiff argues that the chicken sent did not
comply with the terms of the contract because the term "chicken" means young chicken.

Synopsis of Rule of Law. To interpret a disputed term in a contract, the court will
consider (in order of importance): (1) the language of the contract, (2) the preliminary
negotiations, (3) trade usage, (4) legal standard, (5) course of performance, and (6)
maxims.

Facts. Defendant contracted to sell chicken to Plaintiff. Both contract indicated that
Defendant was selling specified amounts of 2 - 3 lb. chickens and 1 1/2 - 2 lb.
chickens. When the fist shipment was sent, Plaintiff found that the heavier chickens were
not young chickens suitable for broiling or frying, but older stewing chicken. The parties
disagree as to what the term "chicken" in the contract means.

Issue. Does the term "chicken" in the contract mean only younger chicken?

Held. No. The term "chicken" in the contract did not mean only younger chicken.

1 In determining what a term means the court will consider (in order of
importance): (1) the language of the contract, (2) the preliminary
negotiations, (3) trade usage, (4) legal standard, (5) course of performance,
and (6) maxims.

2 The smaller chickens had to be younger chickens, because older chickens

do not come in that size. Because the smaller chickens had to be younger
chickens, Plaintiff argues that the larger chickens also had to be young.

3 Plaintiff also argues that trade usage of the term "chicken" is to indicate a
young chicken. However, there was conflicting evidence as to whether
"chicken" only means a young chicken in the trade.

4 One maxim is that a reasonable construction is preferred over an

unreasonable construction. Defendant alleges that to sell younger chicken
to Plaintiff at the contract price would result in a loss to the Defendant.
Because under the Plaintiff's construction the contract would result in
Defendant selling chicken at a loss, Defendant argues that Plaintiff's
definition of "chicken" is unreasonable.
5 The Court holds that the because Defendant's definition coincides with
the objective meaning, one of the dictionary definitions, the Department of
Agriculture's regulations referenced in the contract, some trade usage, the
83 Frigaliment Importing Co. v. B.N.S. International Sales Corp.
1 realities of the market, and statements by Plaintiff's spokesperson, Plaintiff
has not met its burden of showing that the narrower definition of the term
applies.

Discussion. In the present case, the court holds that Plaintiff did not meet its burden of
showing that its interpretation of the term "chicken" should control when all of the factors
are considered.
84 C & J Fertilizer, Inc. v. Allied Mutual Insurance Co.
C & J Fertilizer, Inc. v. Allied Mutual Insurance Co.

Citation. 227 N.W.2d 169 (1975).

Brief Fact Summary. Plaintiff C & J Fertilizer, Inc. purchased a burglary policy from
Defendant Allied Mutual Insurance Co. After Plaintiff's premises were burglarized,
Defendant denied coverage under the policy on the basis that there were no visible marks
or physical damage to the exterior of the premises.

Synopsis of Rule of Law. To apply the reasonable expectations doctrine, the Court looks
at the reasonable expectations of the parties when there is an adhesion contract and
interprets any non-bargained for terms according to the reasonable expectations of the
non-drafting party

Facts. Plaintiff had a burglary policy issued by Defendant. In April of 1970, equipment
was stolen from Plaintiff's premises. There were no signs of forced entry on the outside of
the building, but there were signs of forced entry on the inside of the building. However,
there were tread marks near a door to the warehouse that could be forced open without
leaving visible marks or damage. The burglary policy stated that it only covered where
there are "visible marks made by tools, explosives, electricity or chemicals upon, or
physical damage to, the exterior of the premises at the place of . . . entry." Prior to the
purchase of the policy, an agent of Defendant informed Plaintiff during their conversation
about coverage that there needed to be visible evidence of burglary for a burglary to be
covered under the policy. Defendant denied coverage for the burglary under the policy.
Defendant's agent who sold Plaintiff the policy was surprised.

Issue. Did the burglary definition in the policy violate Plaintiff's reasonable expectations?

Held. Yes. The burglary definition in the policy violated Plaintiff's reasonable
expectations.

1 The Court determines that the policy is an adhesion contract because it

contains standardized terms that were presented to Plaintiff, the weaker
party, on a take it or leave it basis.

2 Plaintiff argues that the reasonable expectations doctrine should apply.

The reasonable expectations doctrine looks at the reasonable expectations
of the parties when there is an adhesion contract and interprets any non-
bargained for terms according to the reasonable expectations of the non-
drafting party. If the non-dickered terms violate the dickered terms, the
terms go against the main purpose of the document, or the terms are
bizarre or oppressive, it may be inferred that there was reason to believe
that the other party would not accept to the terms.
85 C & J Fertilizer, Inc. v. Allied Mutual Insurance Co.
1 Although the Court determines that Plaintiff had reason to expect that the
coverage would not cover an inside job, the Court does not find that
Plaintiff had reason to know that coverage would be denied when there
was extensive proof that the burglary was not an inside job.

2 The Court also notes that the burglary definition in the policy is not
consistent with the layman's concept or the legal definition.

3 The Court finds that the most Plaintiff could have anticipated the
burglary clause would require is visible evidence that the burglary was not
an inside job. Here there is such evidence.

Discussion. In the present case, Defendant's definition of burglary in the policy violated
Plaintiff's reasonable expectations of what would be covered under the policy.
86 Thompson v. Libby
Thompson v. Libby

Citation. 34 Minn. 374, 26 N.W. 1 (1885).

Brief Fact Summary. Defendant Libby entered into a written contract to purchase logs
from Plaintiff Thompson. Defendant claims that Plaintiff breached an oral warranty as to
the quality of the logs.

Synopsis of Rule of Law. The parol evidence rule prevents extrinsic evidence from being
used to contradict or vary the terms of a written contract that is intended as the full
expression of the parties' agreement.

Facts. Plaintiff entered into a contract with Defendant to sell Defendant logs. The parties
put the contract in writing. Defendant alleges that Plaintiff made an oral warranty as to
the quality of the logs.

Issue. Is the evidence of the oral warranty barred by the parol evidence rule?

Held. Yes. Evidence of the warranty is inadmissible under the parol evidence rule.

1 The parol evidence rule prevents the use of extrinsic evidence to speak
where the writing is silent or vary where the writing speaks. The parol
evidence rule applies when the written document is a complete integration.
A complete integration is a written document intended to be the full
expression of the agreement between the parties.

2 The Court determined that the written contract for the sale of the logs
was a complete integration. Because the oral warranty would add or vary
terms in the written contract, evidence of the warranty is inadmissible
under the parol evidence rule.

Discussion. In the present case, the Court found that the evidence of a warranty was
inadmissible under the parol evidence rule because it added or varied the terms of the
parties written contract.
87 Taylor v. State Farm Mutual Automobile Insurance Co.
Taylor v. State Farm Mutual Automobile Insurance Co.

Citation. 175 Ariz. 148, 854 P.2d 1134 (1993).

Brief Fact Summary. Plaintiff Taylor was in a three-car accident. Defendant State Farm
Mutual Automobile Insurance Co. was Plaintiff's insurance provider. Plaintiff received a
verdict against him in excess of his policy limit and is claiming that Defendant acted in
bad faith by not settling the claim within the policy limits.

Synopsis of Rule of Law. Under the Corbin view, a court first looks at all then evidence
to determine the intent of the parties' and the extent of integration in the written
document, then the court applies the parol evidence rule to exclude any extrinsic evidence
that varies or contradicts the written document.

Facts. This claim arises from a three-car accident involving Plaintiff. Defendant is
Plaintiff's automobile insurance provider. Plaintiff received a judgment against him in
excess of his policy limits. Plaintiff claims that Defendant acted in bad faith by not
settling the claim within the policy limits. Defendant argues that the claim is barred by a
release Plaintiff signed. Plaintiff signed the release rather than pursuing a claim against
Defendant under the uninsured motorist provision of the policy.

Issue. Was the extrinsic evidence of Plaintiff's intent regarding the release properly
admitted?

Held. Yes. The extrinsic evidence was properly admitted.

1 When parties have completely expressed their contract in writing, the

parol evidence rule bars the admission of extrinsic evidence that
contradicts or varies the written contract. However, extrinsic evidence may
be allowed for the purpose of interpretation.

2 Under the restrictive view, extrinsic evidence may be admitted to aid in

interpreting a document if the language is unclear, ambiguous, or vague.

3 The Court adopts the Corbin view, rather than the restrictive view. The
Corbin view first looks at all the evidence to determine what evidence is
relevant to the parties' intent and the extent of integration. After the intent
of the parties has been determined, the court then applies the parol
evidence rule and excludes any evidence that contradicts or varies the
meaning of the agreement.

4 Plaintiff wanted to introduce extrinsic evidence that the release was

intended to apply only to the claim under the uninsured motorist provision
and not the claim for bad faith. The evidence Plaintiff wants to introduce
includes the disparity between the amount Plaintiff received under the
release and the amount Plaintiff could potentially recover for the bad faith
88 Taylor v. State Farm Mutual Automobile Insurance Co.
1 claim. The Court also notes that the language in the release was very
limiting whereas broader language could have indicated an intention to
include the bad faith claim in the release.

Concurrence. The concurring opinion is concerned that the majority opinion does not
provide enough guidance for subsequent cases dealing with this same issue.

Discussion. In this case, the Court does not look solely at the "four corners" to determine
the extent of integration. Instead the Court applies the Corbin approach and uses extrinsic
evidence to determine whether the parties intended the written document to be a complete
integration.
89 Sherrodd, Inc. v. Morrison-Knudsen Co.
Sherrodd, Inc. v. Morrison-Knudsen Co.

Citation. 249 Mont. 282, 815 P.2d 1135 (1991).

Brief Fact Summary. Plaintiff Sherrodd, Inc. was a subcontractor on a project for which
Defendant Morrison-Knudsen Co. was the general contractor. Plaintiff's bid was based on
a miscalculation. Allegedly, Plaintiff was told that compensation for the additional work
would be provided.

Synopsis of Rule of Law. The fraud exception to the statute of frauds only applies where
the fraud does not directly relate to the subject of the contract.

Facts. Plaintiff was a subcontractor of COP and COP was a subcontractor of Defendant,
the general contractor on the project. Plaintiff alleges that Defendant stated that the job
would involve excavating 25,000 cubic yards. Plaintiff submitted a bid based on this
information. COP and Plaintiff entered into a written contract based on the price in
Plaintiff's bid. Plaintiff discovered that the job would involve more than 25,000 cubic
yards, but signed the contract anyway because work had already been started and COP
threatened not to compensate Plaintiff for the work that had already been performed.
Plaintiff claims COP stated that Plaintiff would receive more than the contract price to
compensate for the additional work. COP claims to have only offered to assist Plaintiff
with another claim. The contract included a provision that it could not be modified by a
verbal agreement.

Issue. Was evidence of the verbal agreement properly excluded?

Held. Yes. Evidence of the verbal agreement was properly excluded.

1 Under the parol evidence rule, when an agreement is put into writing,
evidence of terms outside of the written document is barred except where
there is a claim of mistake or imperfection or the validity of the agreement
is in question.

2 The Court recognizes that there is an exception to the parol evidence for
fraud. However, the Court determines that the exception does not apply
under these facts because the fraud directly relates to the subject of the
contract. Because the alleged fraud contradicts the terms of the written
contract, it is inadmissible under the parol evidence rule.

Dissent. The dissent is concerned that parties with greater bargaining power will not be
held accountable for their fraud. The dissenting opinion expresses several reasons why it
does not agree with the majority's holding that the fraud exception does not apply when
the fraud directly relates to the subject of the contract. One reason is that it rewards the
fraudulent party creating injustice.
Discussion. In the present case, the Court does not allow Plaintiff to present extrinsic
evidence of fraud because the evidence directly relates to the subject of the contract.
90 Nanakuli Paving & Rock Co. v. Shell Oil Co.
Nanakuli Paving & Rock Co. v. Shell Oil Co.

Citation. 664 F.2d 772 (9th Cir. 1981).

Brief Fact Summary. Appellant Nanakuli Paving & Rock Co. entered into a contract to
purchase all of its asphalt from Appellee Shell Oil Co. The contract did not expressly
provide price protection. However, price protection is widely used in the locality and had
been provided by Appellee on two occasions.

Synopsis of Rule of Law. Despite the parol evidence rule, the UCC allows the admission
course of performance, course of dealing, and trade usage evidence.

Facts. Appellant entered into a supply contract with Appellee. Appellee agreed to supply
Appellant with all of its asphalt requirements. Appellant claims that Appellee breached
the contract by not offering price protection. Appellant alleges that price protection is
used by all suppliers in the trade and that price protection is the "commercially
reasonable standard for fair dealing" in the trade. In support of the claim, Appellant
presented evidence of trade usage of price protection. In addition, Appellant provided
evidence of two prior instances where Appellee provided price protection under the
contract.

Issue. Was extrinsic evidence that price protection should be incorporated into the
contract properly admitted?

1 Was the evidence of trade usage properly admitted?

2 Was the evidence of course of performance properly admitted?

Held. Yes. The UCC allows the admission of extrinsic evidence of trade usage and course
of performance.

1 Usage of trade is "any practice or method of dealing having such

regularity of observance in a place, vocation or trade as to justify an
expectation that it will be observed with respect to the transaction in
question." The UCC allows the court to look at trade usage in contract
interpretation. The Court interprets the UCC trade usage comments to
allow use of practices in the locality that include other trades or vocations
if those practices are so common that the parties are aware of them. The
Court held that the definition of trade usage used by the trial court was not
too broad as to Appellee.

2 Course of performance looks at how the parties have already performed

under the contract. Appellant presented evidence that Appellee had given
price protection in the past. Appellee argues that the two prior instances do
not amount to course of performance. However, they were the only two
times the issue had come up and when it did arise in the past, Appellee
91 Nanakuli Paving & Rock Co. v. Shell Oil Co.
1 indicated that Appellant was entitled to the price protection. Appellee also
argues that the prior two instances were merely a waiver, but the Court
held that it was properly determined to be course of performance by the
jury.

2 Appellant also argues that good faith required the inclusion of price
protection. Good faith for merchants is defined by the UCC as "the
observance of reasonable commercial standards of fair dealing in the
trade." Appellant presented evidence that the amount of notice given by
Appellee prior to increasing price did not conform with reasonable
commercial standards of fair dealing. The Court held that the jury had
enough evidence to find that the price increase did not conform with the
good faith standard and reinstated the jury's verdict.

Discussion. In the present case, the Court reinstated the jury verdict incorporating price
protection into the contract based on evidence of course of performance and trade usage.
92

CHAPTER VI.
Supplementing The
Agreement: Implied Terms,
The Obligation Of Good
Faith, And Warranties
93 Wood v. Lucy, Lady Duff-Gordon
Wood v. Lucy, Lady Duff-Gordon

Citation. 222 N.Y. 88, 118 N.E. 214 (1917).

Brief Fact Summary. Defendant Lucy, Lady Duff-Gordon, entered into a contract with
Plaintiff Wood. The contract gave Plaintiff the exclusive right to use Defendant's
endorsement and to sell and license Defendant's designs.

Synopsis of Rule of Law. An obligation to make reasonable efforts may be implied.

Facts. Defendant, a "creator of fashions," entered into a contract with Plaintiff.

According to the agreement, Plaintiff was given the exclusive right to sell or license the
sale of Defendant's designs and to place her endorsements on items designed by others
that she approved. Defendant would receive one half of the profits and revenues under
the contract. Without Plaintiff's knowledge, Defendant placed her endorsement on various
products including fabrics, dresses and millinery.

Issue. Is an obligation to make reasonable efforts implied?

Held. Yes. The Court implies an obligation to make reasonable efforts. The Court finds
that without an implication to make reasonable efforts, the contract would be worthless to
Defendant. Further, the Court seems to question why such a contract would ever be
entered into without some expectation that reasonable efforts would be made. Without an
obligation to make reasonable efforts to bring in profits and revenues, the contract would
be without value.

Discussion. In the present case, the Court implied an obligation to make reasonable
efforts to give value to the contract.
94 Leibel v. Raynor Manufacturing Co.
Leibel v. Raynor Manufacturing Co.

Citation. 571 S.W.2d 640 (1978).

Brief Fact Summary. Appellant Liebel, entered into a verbal dealership agreement with
Appellee Raynor Manufacturing Co. The agreement did not address duration. Appellee
terminated the agreement after two years.

Synopsis of Rule of Law. Where there is a relationship of manufacturer-supplier and

dealer-distributor, reasonable notice of intent to terminate an ongoing verbal agreement is
required under the UCC.

Facts. Appellee entered into a verbal agreement to give Appellant an exclusive dealer-
distributorship for Appellee's garage doors. Appellee was to provide garage doors,
operators, and parts to Appellant at the factory distributor price. Appellant agreed to sell,
install and service only Appellee's products. The agreement covered an area extending to
a fifty mile radius from Lexington, Kentucky. Appellant borrowed a substantial amount
of money to begin the business. After two years, sales of Appellee's products appeared to
be decreasing. Appellee notified the defendant that the relationship was terminated. In
addition, Appellant learned there was a new dealer-distributor in the area and that any
future purchases Appellee's products would have to be made through the new dealer-
distributor.

Issue. Was Appellant entitled to reasonable notice of Appellee's intention to terminate the
verbal agreement?

Held. Yes. Appellant was entitled to reasonable notice of Appellee's intention to

terminate the verbal agreement.

1 Transactions involving goods and merchandise fall under Article II of the

UCC. The court finds that distributorships fall under Article II of the UCC.

2 Article II of the UCC requires that reasonable notice be given if the

agreement is for an infinite duration. The Court interprets reasonable
notice as relating to "the circumstances under which notice is given and
the extent of advance warning" not the method by which notice is given.
The Court holds that Appellee was required to give Appellant reasonable
notice of intent to terminate.

Discussion. In the present case, the Court holds that the verbal dealership agreement for
infinite duration required reasonable notice of intent to terminate the agreement.
95 Locke v. Warner Bros., Inc.
Locke v. Warner Bros., Inc.

Citation. 57 Cal. App. 4th 354, 66 Cal. Rptr. 2d 921 (1997) review denied.

Brief Fact Summary. As part of a settlement agreement between Plaintiff Locke and
movie star Clint Eastwood, Mr. Eastwood agreed to secure a production deal between
Defendant Warner Brothers and Plaintiff. The deal was granted to Plaintiff giving her the
opportunity to develop movies with Defendant movie studio. Plaintiff alleged Defendant
violated the implied covenant of good faith in that they never intended to make any films
with her.

Synopsis of Rule of Law. Where a contract confers on one party a discretionary power
affecting the rights of the other party, an implied covenant of good faith requires such
party to exercise that discretion with good faith and in accordance with fair dealing.

Facts. Plaintiff Locke entered into a settlement agreement with movie star Clint
Eastwood. As part of that agreement, Mr. Eastwood secured a production agreement
between Defendant Warner Brothers movie studio and Plaintiff. The agreement gave
plaintiff a "non-exclusive first look deal" which allowed plaintiff to submit to Defendant
any picture in which Plaintiff was interested in developing. Defendant had the option to
pass on each project which Plaintiff submitted. The agreement also gave Defendant the
option to use Plaintiff as a director for one of its movies, or to pay her a fee. Plaintiff was
never given an opportunity to develop a movie with Defendant, nor was she afforded the
chance to direct a movie. Plaintiff brought suit against Defendant alleging breach of
contract for failing to consider her for any projects. Plaintiff further alleged fraud on the
part of Defendant for entering into a contract with no intention of honoring the
agreement.

On summary judgment, the trial court dismissed Plaintiff's causes of actions, holding that
since Defendant had the option of both passing on Plaintiff's movie ideas and giving
Plaintiff a director role, the Defendant was not required to have a good faith reason for
declining to exercise its right to develop her material. The trial court further stated that it's
not the court's role to substitute its judgment for a film studio's when the studio is making
a creative decision.

On appeal, Plaintiff alleged that Defendant breached the agreement by refusing to

consider the agreement in good faith, and that Defendant fraudulently entered into the
contract with no intention of honoring the agreement. On appeal, Plaintiff introduced the
testimony of a Warner employee who recounted a conversation he had with a Warner
executive. In that conversation the Warner executive stated that Defendant was not going
to work with her. Plaintiff also introduced testimony from another Warner employee that
recounted a conversation in which the employee was told that Warner was not going to
make a movie with her.
Issue. Whether the evidence presented raised a material issue of whether Defendant
violated the implied covenant of good faith in dealing with Plaintiff.
96 Locke v. Warner Bros., Inc.
Held. The Court held that Plaintiff introduced sufficient evidence to call into question
whether Defendant, in exercising its discretionary power to refuse to develop a movie
with Plaintiff, did so with good faith. The Court held that where one party holds a
discretionary power affecting the rights of another, it must exercise such power in good
faith. The Court further held that Plaintiff introduced sufficient circumstantial evidence to
show that Defendant had no intent to honor the agreement at the time the agreement was
entered into.

The Court was quick to note, however, that the implied covenant of good faith will not be
used to contradict any express terms of a contract. Thus, where one party's actions are
authorized by an express provision to the contract, no covenant of good faith can be
implied to forbid such conduct.

Discussion. This case illustrates how the implied covenant of good faith is interpreted
into every contract and that when one party has discretionary power over another party to
the contract, such discretion must be exercised with good faith and fair dealing. The
Court was quick to note, however, that the implied covenant of good faith will not be
used to contradict any express terms of a contract. Thus, where one party's actions are
authorized by an express provision to the contract, no covenant of good faith can be
implied to forbid such conduct.
97 Empire Gas Corp v. American Bakeries
Empire Gas Corp v. American Bakeries

Citation. 840 F.2d 1333 (7th Cir. 1988).

Brief Fact Summary. Defendant American Bakeries entered into a requirements contract
to purchase three thousand gas conversion units from Plaintiff Empire Gas Corp.
Defendant failed to order any units from Plaintiff, and Plaintiff sued to recover the
estimated purchase price of the units.

Synopsis of Rule of Law. U.C.C. 2-306(1) only prevents a buyer from requesting an
unreasonably disproportionate amount more than was originally contracted for. A buyer
may request less than what was originally contracted for, or even none at all, so long as
the buyer's change in requirements is not done in bad faith.

Facts. Due to increased prices in petroleum, Defendants entered into a requirements

contracts to purchase three thousand gas conversion units, which would have allowed
Defendant's fleet of trucks to operate on less expensive propane gas. For reasons
unexplained, Defendant decided not to purchase any units at all, from either Plaintiff or
any other manufacturer. Plaintiff sued Defendant for the estimated cost of the purchase
price of the units. The Trial Court awarded judgment in favor of Plaintiff, holding that
U.C.C. 2-306(1) prevented Defendant from requesting an amount unreasonably
disproportionate to the original request of three thousand units. In an opinion by Judge
Posner, the Seventh Circuit overruled, holding that U.C.C. 2-306(1) only prevented a
buyer from demanding more units than the buyer had originally sought. This was to
prevent the buyer from going into competition from the seller by taking advantage of a
favorable price. The Court of Appeals held that if a buyer buys less, or even if the buyer
completely fails to buy, then the Court should examine whether such reduction was done
in bad faith or not.

Issue. Whether U.C.C. 2-306(1) allowed the buyer to cancel its purchase entirely and if
so, did Defendant buyer violate the implied obligation of good faith by not buying any
units?

Held. In an opinion by Judge Posner, the Seventh Circuit overruled the trial court,
holding that U.C.C. 2-306(1) only prevented a buyer from demanding
disproportionately more units than the buyer had originally sought. This was to prevent
the buyer from going into competition from the seller by taking advantage of a favorable
price. The Court held nonetheless that Defendant buyer violated the implied obligation of
good faith by failing to purchase any units, because Defendant failed to give the Court
any reason at all why they decided not to purchase any units.

Dissent. The dissent held that requiring Defendants to give a legitimate business reason
for why they failed to purchase any units places the burden of proving good faith on the
defendant, rather than on the plaintiff. The dissent found that there was no evidence of
good faith or bad faith in the case at hand, because neither party introduced evidence on
98 Empire Gas Corp v. American Bakeries
the subject. The dissent would have remanded back to the trial court and place the duty
on Plaintiff to show bad faith.

Discussion. This case illustrates that in a requirements contract, a buyer will be

prohibited from demanding disproportionately more than what the original terms of the
contract spelled out. When ordering less, or ordering nothing at all, the buyer need only
show that they have a good faith, legitimate business reason, for the decrease in demand.
99 Donahue v. Federal Express Corp.
Donahue v. Federal Express Corp.

Citation. 753 A.2d 238 (2000).

Brief Fact Summary. Appellant Brian Donahue brought suit against Appellee Federal
Express on the grounds that he was wrongfully terminated. Appellant claimed Appellees
violated the implied covenant of good faith with respect to employment-at-will contracts.

Synopsis of Rule of Law. No implied duty of good faith and fair dealing applies to
termination of a pure at-will employment contract.

Facts. Appellant alleged that he was retaliated against for blowing the whistle on his
supervisor after he learned that his supervisor had been negligently handling repair
orders. After Appellant complained to his supervisor regarding the invoice-discrepancy
issue he was accused for gross misconduct. Appellant was eventually discharged after
which he appealed his termination through Appellee's Guaranteed Fair Treatment
Program. Appellant appealed his termination three times, each time management upheld
his termination. At trial, the Trial Court granted preliminary objections in favor of
Appellee. Appellant claimed that by firing him for whistle blowing, and by failing to
fairly adhere to company policies for employee grievances, Appellees violated the
implied covenant of good faith with respect to employment-at-will contracts.

Issue.

1 Whether an implied covenant of good faith with respect to at-will

contracts exists, and if so, whether Appellees violated it. Appellant also
alleged that Appellees failure to fairly adhere to the guidelines of its
internal policies was also a violation of the implied duty of good faith and
fair dealing.

2 Whether Appellees violated public policy by firing Appellant for whistle

blowing.

3 Whether Appellant rendered sufficient additional consideration to

remove his status from that of an at-will employee.

Held.

1 The Appellate Court held that there is no implied duty of good faith and
fair dealing with respect to employment at-will contracts, except where the
termination threatens clear public policy. The Court further held that,
except where an employee handbook is explicitly incorporated into the
terms of an employment contract, an employer is under no contractual
duty to adhere to such guidelines.
2 The Court held that except for when an employee is under a legal
obligation to do so, termination for whistle blowing is not a violation of
100 Donahue v. Federal Express Corp.
1 public policy. Clear examples of public policy violations are (1) requiring
employee to commit a crime, (2) preventing an employee from complying
with statutorily required duty, and (3) when statute prohibits discharging
such employee.

2 The Court held that Appellant's bare allegation that he performed

superior work for Appellee was insufficient to establish additional
consideration. The Court cited Cashdollar v. Mercy Hosp. of Pittsburgh,
406 Pa. Super 606, for an example of when an employee furnishes
sufficient additional consideration. There, the employee moved to a new
state, selling his house, and giving up his old position, only to be fired 16
days into his new job. The Court held that was sufficient to remove the
employment-at will doctrine.

Discussion. This case illustrates that courts will rarely interpret an at-will employment
contract do contain an implied duty of good faith and fair dealing.
101 Bayliner Marine Corp. v. Crow
Bayliner Marine Corp. v. Crow

Citation. 257 Va. 121, 509 S.E.2d 499 (1999).

Brief Fact Summary. Plaintiff brought suit against the seller and manufacturers of a
fishing boat alleging that Defendants breached an express warranty and implied
warranties of merchantability and fitness for a particular purpose. Plaintiff claimed that
the boat he was sold was significantly slower than what was allegedly represented to him.

Synopsis of Rule of Law. Express warranties are created when the seller makes an
affirmation of fact or a promise to the buyer which becomes part of the basis of the
bargain, or when the seller makes a description of certain goods that becomes part of the
basis of the bargain. All goods that are sold contain an implied warranty that such goods
are merchantable.

Facts. Plaintiff test drove an off-shore fishing boat, which was manufactured by
Defendant Bayliner, with a sales representative from Defendant Tidewater. Plaintiff was
unsure of how fast the boat was traveling during his test drive. In order to determine the
potential speed of the boat, Plaintiff was given documents described as "prop matrixes"
which were included by Defendant Bayliner in the owner's manual. The "prop matrixes"
described the boat as having the capacity to travel 30 miles per hour when equipped with
size "20 x 20" or "20 x 19" propellers, when carrying approximately 600 lb. of passenger
gear. Plaintiff was also delivered a brochure which stated that the type of boat in question
delivers the "kind of performance you need to get to the prime offshore fishing grounds."

Plaintiff purchased the same model boat that he had test driven for $120,000, but the boat
he purchased had a propeller size of "20 x 17" and had equipment installed that weighed
over 2,000 lbs. Plaintiff's boat traveled significantly slower than he expected, and
eventually only achieved a maximum speed of 17 miles per hour. Plaintiff eventually
received a letter from Defendant manufacturer that the maximum speed the boat could
achieve was 23 to 25 mph.

Plaintiff alleged that he was unable to use the boat because of the long distances needed
to travel for offshore fishing, and that there was a major impact on the time left in the day
for fishing due to the boat's speed. Despite Plaintiff's alleged problems with the boat he
had recorded over 850 hours of engine usage during the first few years after he purchased
it. Plaintiff brought suit against the manufacturers alleging breached express warranties
and implied warranties of merchantability.

The trial court awarded Plaintiff damages of $135,000, which included costs for storing,
maintaining, insuring and financing the boat.

Issue.

1 Whether the representations made to Plaintiff in the prop matrixes and

brochures were express warranties.
102 Bayliner Marine Corp. v. Crow
1 Whether the boat's failure to reach a maximum speed of 30 mph was a
breach of the implied warranty of merchantability.

Held.

1 The Court held that express warranties are created when the seller makes
an affirmation of fact or a promise to the buyer which becomes part of the
basis of the bargain, or when the seller makes a description of certain
goods that becomes part of the basis of the bargain. Mere opinions or
commendations of a seller's products are not express warranties. The
Court ruled that since the statements contained in the prop matrixes were
not express warranties about the performance capacity of the boat because
the documents explicitly referred to a boat that carried less weight and had
different propeller sizes than the one Plaintiff purchased. Further, the
brochure which described the boat being one that "delivers the kind of
performance you need to get to the prime offshore fishing grounds" was a
simply a statement of opinion or commendation made by the seller, and
that such statements are not, standing alone, express warranties.

2 With respect to implied warranties, the Court held that the goods must
"be such as would pass without objection in the trade and as are fit for the
ordinary purpose for which such goods are used." Despite the fact that
Plaintiff was unable to use the boat for offshore fishing, the Court found
no evidence from which to conclude that the boat generally was not
merchantable as an offshore fishing boat.

3 The Court held that Plaintiff failed to introduce evidence showing what
the standard of merchantability in the offshore fishing trade was and
whether a significant segment of the buying public would object to buying
the goods.

4 Nor did the evidence support the conclusion that the boat was not fit for
its ordinary purpose as an offshore fishing boat, because Plaintiff had used
the boat for 850 hours, and there was nothing in the record to indicate that
boat's which possess the speed capabilities that Plaintiff's boat did are
unacceptable as offshore fishing boats.

5 Finally, the Court said there was no breach of an implied warranty of

fitness for a particular purpose. Such a warrant exists when seller has a
reason to know any particular purpose for which the goods are required
and that the buyer is relying on the seller's skill or judgment to select or
furnish suitable goods. Plaintiff contended that particular purpose for
which the boat was purchased for was to travel at speeds of 30 miles per
hour. The Court disagreed and held that Plaintiff had failed to introduce
evidence showing that he made this requirement known to the seller.
103 Bayliner Marine Corp. v. Crow
Discussion. An express warranty for an item will exist where a seller makes an
affirmation of fact or promise to the buyer which becomes part of the basis of the bargain.
Mere opinions or puffery do not constitute express warranties. All goods that are sold also
contain an implied warranty of merchantability, which means that such goods must pass
without objection in the trade and as are fit for the ordinary purpose for which goods are
used.
104 Caceci v. Di Canio Construction Corp
Caceci v. Di Canio Construction Corp

Citation. 72 N.Y.2d 521, 526 N.E.2d 266 (1988).

Brief Fact Summary. Plaintiffs Mary and Thomas Caceci brought suit against Defendant
builder of their home five years after the home was constructed. Plaintiffs alleged that
Defendant builders violated the implied warranty of merchantability by building on an
unstable foundation which caused the kitchen floor to dip.

Synopsis of Rule of Law. New York courts recognize the Housing Merchant warranty,
which imposes a contractual liability to build new homes with skillful performance and
quality. Thus, the common law rule of Caveat Emptor may not be invoked in the context
of new home construction.

Facts. Defendants entered into a $50,000 construction agreement with Plaintiff to build a
new home. The construction contract, which contained a standard integration clause, gave
Plaintiffs an express warranty for one year from title closing for replacement or repair of
any defects or defective parts. Although the contract did contain several other limited
warranties pertaining to workmanship, the contract explicitly held that such warranties
would not survive past the date of closing.

Nearly four years after the closing, Plaintiffs noticed that the kitchen floor was dipping.
After Defendants made several unsuccessful attempts to repair the floor, Plaintiffs hired a
third party who determined that the dipping resulted from the house being built on poor
foundation. Plaintiffs then sued Defendants to recover the costs of the repairs.

The trial court returned a verdict for Plaintiffs on the basis of negligent construction and
breach of implied warranty of workmanlike construction. Pictorial evidence was
produced at trial showing that Defendants knew, at the time of construction, that the
foundation was faulty. Based on Defendants' knowledge, the trial court awarded
judgment for the Plaintiff.

Issue. Whether an implied warranty of merchantability exists with respect to newly

constructed homes.

Held. The Court of Appeals affirmed the lower court's decision that Defendants breached
the implied warranty of merchantability by erecting the house on poor soil. The Court of
Appeals held that with respect to new houses, construction must be done in a skillful
manner free from any material defects. The Court of Appeals departed from the lower
court's ruling and said that it is immaterial whether the Defendant builders had actual
knowledge of the defect. The Court held that since builders are in a much better position
than buyers to ensure the proper quality of the home, the burden should fall on such
builders. Thus, any material defect in the quality of a home will be a breach of the
implied warranty of merchantability irrespective of whether the builder has actual notice
of the defect or not.
105 Caceci v. Di Canio Construction Corp
Discussion. An implied warranty of merchantability will be read into all construction
contracts for new homes. The burden for furnishing a new home without material defect
will fall on the builder, and thus the builder's actual knowledge of the defect is not
necessary in order for a breach to occur.
106

CHAPTER VII. Avoiding

Enforcement: Incapacity,
Bargaining Misconduct,
Unconscionability, And
Public Policy
107 Dodson v. Shrader
Dodson v. Shrader

Citation. 824 S.W.2d 545 (1992).

Brief Fact Summary. Plaintiff Joseph Dodson purchased a pick-up truck from
Defendant Shrader's Auto Sales. At the time of the sale Plaintiff was 16 years of age.
After the truck broke down Plaintiff sought to rescind the sale on grounds that he lacked
legal capacity to enter into the contract at the time of the sale.

Synopsis of Rule of Law. Absent overreaching and unfair bargaining, a seller may
receive reasonable compensation for the use of, depreciation of, or damage to goods sold
to a minor.

Facts. Plaintiff, who at the time was 16 years of age, purchased a pick-up truck from
Defendant for $4900. No discussion of Plaintiff's age was had and Defendant testified
that he believed Plaintiff to be 18 or 19 years old. Plaintiff bought the truck with money
had had borrowed from his girlfriend's grandmother. After nine months from the date of
purchase, Plaintiff brought the truck in for repair after the truck began experiencing
mechanical difficulties. The mechanic notified Plaintiff that it was likely the truck needed
a repair. Plaintiff could not afford such repairs and elected to continue driving the truck
around until the engine blew out. After unsuccessfully trying to return the truck to
Defendant, Plaintiff parked the car in his front yard. While parked, a passing car hit the
front fender of the truck; the estimated value of the truck after the collision was $500.
Plaintiff brought suit against Defendants seeking to rescind the original agreement. The
trial court granted Plaintiff's request and required Defendant to reimburse Plaintiff for the
full purchase price.

Issue. Whether a seller is entitled to receive reasonable compensation for the loss of
value to goods sold to a minor while such goods are in the minor's possession.

Held. The Court held that absent any overreaching, fraud, or unfair advantage on the part
of the adult seller, a seller is entitled to reasonable compensation for the use of,
depreciation, or willful or negligent damage done to goods sold, while such goods are in
the minor's possession. The Court remanded the case to the trial court to make factual
determinations of whether there was any overreaching, and if not, to determine whether
Plaintiff's actions of parking the car on the side of the road and failing to get the truck
fixed constituted gross negligence on behalf of Plaintiff.

Dissent. This case provides protection to a seller by providing them with reasonable
compensation for loss of value to goods while such goods are in a minor's hands. It also
protects the minor because this rule will only apply when there is no evidence of
overreaching, fraud, or unfair advantage on part of the adult seller.

Discussion. A seller of goods to a minor, absent overreaching, fraud or unfair advantage,

will be entitled to reasonable compensation for the use of, deprecation to, or damage done
108 Dodson v. Shrader
by willful or negligent conduct to goods sold, while such goods are in the minor's
possession.
109 Hauer v. Union State Bank of Wautoma
Hauer v. Union State Bank of Wautoma

Citation. Court of Appeals of Wisconsin, 192 Wis.2d 576, 532 N.W.2d 456 (1995).

Brief Fact Summary. Plaintiff Kathy Hauer brought suit against Defendant Union State
Bank of Wautoma to recover the collateral used to secure the loan agreement with
Defendant Bank. Plaintiff sought to rescind the transaction on the basis of being mentally
incompetent.

Synopsis of Rule of Law. A contract entered into by someone who lacks mental capacity
is voidable. Further, if one party has knowledge, either actual or constructive of the other
parties lack of capacity, the party with such knowledge may not be restored to their
previous position if it is impossible to do so.

Facts. In 1987, Plaintiff suffered a brain injury from a motor cycle accident and was
subsequently adjudicated to be incompetent and was appointed a guardian. A year after
her accident Plaintiff was declared to be competent and was given the ability to manage
her own affairs. She received $900 per month from social security and from interest
income from a mutual fund. Plaintiff was introduced to Ben Eilbes through a friend and
Eilbes convinced Plaintiff to invest in Eilbes' business. Eilbes had been seeking funds to
assist repayment of a loan that he had defaulted on with Defendant bank. Plaintiff was
advised by Eilbes to take out a loan using her mutual fund income as collateral. Eilbes
discussed the potential loan agreement with Richard Schroeder, an assistant vice
president at Defendant Bank. Schroeder indicated that the Bank would be willing to loan
Plaintiff $30,000 on the understanding that the mutual fund would be used for collateral.
Schroeder then spoke to Plaintiff's financial consultant to verify the existence of the bank
loan. Schroeder admits that the financial manager told not to use the mutual fund as
collateral because Plaintiff used that income as the primary source of her income.
Schroeder admits that it was possible that Plaintiff's financial advisor told Schroeder
about Plaintiff's mental incapacity. Plaintiff eventually received the money from the
Bank, putting up her mutual fund as security. Plaintiff invested the money into Eilbes'
business and lost the full amount. Plaintiff then brought suit against the Defendant Bank
alleging, inter alia, that the Defendant knew or should have known about Plaintiff's
mental incapacity and that the Bank breached a fiduciary duty owed to her. The trial court
eventually found that Plaintiff lacked the mental capacity to enter into the loan agreement
and that the Bank failed to act in good faith towards Plaintiff. The Bank was ordered to
return Plaintiff her collateral, and Plaintiff was not forced to repay the $30,000 she had
borrowed. The Bank then appealed.

Issue.

1 Whether Mental Incompetence is a valid cause of action

2 Whether sufficient evidence was introduced at trial to show Plaintiff's

mental incompetence
110 Hauer v. Union State Bank of Wautoma
1 Whether Defendant Bank violated its implied obligation of good faith by
entering into a contract knowing, or having a reason to know, that Plaintiff
was mentally incompetent, thus relieving Plaintiff of any liability for
repayment of the loan.

Held.

1 The Court held that, under established Wisconsin law, an incompetent

person's transactions are entirely voidable, and such person will have the
ability to rescind a contract or conveyance for lack of capacity.

2 The Court held that Plaintiff introduced sufficient evidence such that a
reasonable jury could find Plaintiff incompetent. This was based on
Plaintiff being declared incompetent in 1987, her testimony which
signaled a complete lack of understanding on her part with respect to the
loan, and on the basis of a psychological expert who testified that Plaintiff
was malleable, gullible, and people could convince her of anything.

3 The Court, in interpreting the implied obligation of good faith that is read
into all contracts, stated that where a contract is fairly entered into, and
neither party knows of the other's incapacity, the contract is not voidable if
the parties cannot be restored to their previous positions. However, if one
party knows, or has reason to know of the other party's incompetence, the
contract may be voided and the consideration that was given need not be
restored. The Court stated that there was sufficient evidence introduced to
give Defendant Bank constructive notice that they should have proceeded
more cautiously with Plaintiff. Bank based its findings on the fact that the
loan was essentially set-up by Eilbes, that Eilbes was already in default of
his loan, that Plaintiff relied on her mutual fund for income, and that it was
possible that Plaintiff's financial advisor told Schroeder that Plaintiff had
previously been declared mentally incompetent.

Discussion. If a party has knowledge, either actual or constructive, that the other party
lacks the mental capacity to enter into a contract, that contract is voidable by the party
who lacks capacity, and if its not possible, such consideration need not be restored.
111 Totem Marine Tug & Barge, Inc. v. Aleyska Pipeline Service Co.
Totem Marine Tug & Barge, Inc. v. Aleyska Pipeline Service Co.

Citation. Supreme Court of Alaska, 584 P.2d 15 (1978).

Brief Fact Summary. Plaintiff Totem and its vice-president Robert Stair brought suit
against Defendant Alyeska to rescind an agreement releasing Defendant from all claims
in exchange for $97,500. Plaintiff argued that he was forced to sign such agreement to
avoid being bankrupt and therefore seek to avoid the agreement on grounds of economic
duress.

Synopsis of Rule of Law. Economic Duress exists where (1) one party involuntarily
accepts the terms of another, (2) circumstances permitted no other evidence, and (3) such
circumstances where the result of coercive acts of the other party.

Facts. Plaintiff contracted with Defendant to transport pipeline construction materials

from Houston, Texas, to a designated spot in Southern Alaska. From the outset of the
operations Plaintiff encountered numerous difficulties which severely delayed
performance of the contract. Plaintiff was originally supposed to load between 1,800 to
2,100 tons at Texas, and perhaps pick up another 6,000 to 7,000 tons along the way. Upon
arriving in Texas, however, Plaintiff found that it was to load about 6,700 to 7,200 tons of
pipe which was poorly loaded and stocked. Although Plaintiff was only supposed to take
3 days to load the pipe, it took them nearly thirty days. Plaintiff continued to encounter
difficulties on its way up the coast of California and due to the increased load it was
carrying, it was forced to weight three more days for a second tug boat which would
assist in carrying the increased load. Defendant required Plaintiff to dock instead in San
Pedro, California, where the vessels which had been carrying the pipeline were unloaded
without Plaintiff's consent. Defendant then cancelled the contract refusing to give a
reason for termination. Plaintiffs presented Defendant with an invoice with charges of
$260,000 to $300,000. Plaintiff alleged that it was in urgent need of cash, and that if it
didn't soon pay off its bills, it would have had to declare bankruptcy, and that Defendant,
who had knowledge of Plaintiff's financial troubles, deliberately stalled on payment in
order to reach a settlement. Plaintiff eventually agreed to release Defendant from all
liability in exchange for $97,500. Plaintiff then brought suit to rescind the amended
agreement and to recover the balance allegedly owed on grounds of economic duress.
The Trial Court granted Defendant's motion for summary judgment and Plaintiff's
appealed.

Issue. Whether Plaintiff was forced to accept the terms and conditions of the amendment
such as to allow rescission based on economic duress.

Held. The Court of Appeals, in overturning the lower Court, held that economic duress
exists where (1) one party involuntary accepts the conditions of the other party, (2)
circumstances permitted no alternative, and (3) such circumstances were the result of
coercive acts of the other party. The Court held the Plaintiff had introduced sufficient
evidence to withstand a motion for summary judgment. Plaintiff showed that Defendant
had deliberately withheld payments of a debt, with knowledge that Plaintiff had no choice
112 Totem Marine Tug & Barge, Inc. v. Aleyska Pipeline Service Co.
but to accept the conditions of the amendment or declare bankruptcy, and that the only
way Plaintiff would be able to avoid bankruptcy would be to accept the amendment. The
Court then remanded the case back to the trial court for a complete factual determination
of whether a claim for economic duress truly existed.

Discussion. A party may rescind an agreement if they can show that they entered into
such agreement under economic duress.
113 Odorizzi v. Bloomfield School District
Odorizzi v. Bloomfield School District

Citation. California District Court of Appeals, 246 Cal. App. 2d 123, 54 Cal. Rptr. 533
(1966).

Brief Fact Summary. Plaintiff Donald Odorizzi sought to rescind his written resignation
as a school teacher on the grounds that it was made under duress, menace, fraud, mistake,
and undue influence. Plaintiff, after being arrested on criminal charges of homosexuality,
alleges that we was coerced into resigning by his school principle and district
superintendent.

Synopsis of Rule of Law. A party may rescind an agreement by showing such agreement
was the result of undue influence.

Facts. On June 11, 1964, Plaintiff was arrested and charged on the basis criminal
homosexual activity. On June 13, Plaintiff submitted his resignation as a school teacher.
Plaintiff alleged that he was coerced to submit a resignation by the principal of his school
and the district superintendent after both individuals visited Plaintiff at his home
following Plaintiff's arrest. Plaintiff alleged that while visiting his home, the principal and
district superintendent threatened to suspend, publicly humiliate, and embarrass Plaintiff
unless Plaintiff resigned, and that they told Plaintiff he had no time to speak with an
attorney and that his chances of ever teaching again would be ruined if he did not resign.
Plaintiff alleged that he was under severe mental and emotional pain, and that at the time
he submitted his resignation he had been awake for over forty hours as a result of being
arrested, questioned and detained by state police. Plaintiff's charges were subsequently
dropped and he then sought to rescind his resignation. The trial court dismissed plaintiff's
complaint on demurrer.

Issue. Whether Plaintiff had a cause of action to rescind the agreement based on duress,
fraud (actual and constructive), mistake, or undue influence.

Held. The Court upheld the Trial Court's dismissal of Plaintiff's complain on all grounds
except for undue influence.

1 Duress: In order to rescind an agreement under a claim of duress, the

party must be subject to an unlawful threat or action. The Court stated that
Plaintiff was under no such threat because the school officials merely
threatened to take legal action, which was their duty to do as school
officials.

2 Fraud: In order to rescind an agreement on the basis of fraud, a party

must show misrepresentation, knowledge of falsity, intent to induce
reliance, justifiable reliance, and resulting damages. The court dismissed
Plaintiff's complaint on these grounds because it failed to allege facts
showing any of the elements of fraud other than misrepresentation. The
Court further dismissed Plaintiff's claim for constructive fraud Plaintiff
failed to show
114 Odorizzi v. Bloomfield School District
1 the existence of a confidential relationship, and a mere employer-
employee relationship, without more, fails to meet that burden.

2 Mistake: The Court dismissed this claim because no evidence was

introduced showing that Plaintiff's resignation had been submitted on the
basis of any mistake of fact or mistake of law, as is required for such a
claim.

3 Undue influence: The Court defined undue influence as "taking

advantage of another's weakness of mind; or taking grossly oppressive and
unfair advantage of another's necessities or distress." The Court held that,
like the case at hand, undue influence usually involves someone in a
dominant position taking advantage of someone in a servient position. The
Court held that Plaintiff had pleaded sufficient facts to show that
Defendants had placed excessive pressure on Plaintiff at a time when
Plaintiff was vulnerable and susceptible to over persuasion.

Discussion. A party may rescind an agreement if it can be shown that such agreement
was not entered into under free will, but was a the product of excessive pressure being
put on one who was at the time to be vulnerable and physically and/or emotionally weak.
115 Syester v. Banta
Syester v. Banta

Citation. Iowa Supreme Court, 257 Iowa 613, 133 N.W.2d 666 (1965).

Brief Fact Summary. Plaintiff, a lonely and elderly widow, brought action against
Defendant Arthur Murray Dance Studio, alleging fraud and misrepresentation for nearly
$30,000 worth of dance instruction she bought from Defendant. Plaintiff sought damages
and rescission of a previous release she signed which dismissed an earlier law suit against
Defendant.

Synopsis of Rule of Law. A party to an agreement may rescind such agreement and
recover damages if the agreement was fraudulently entered into. In order to successfully
assert a claim of fraud, all elements of the claim must be met.

Facts. Over a course of six years beginning in 1954, Defendant dance studio managed to
sell nearly $30,000 worth of dance instruction to Plaintiff, a widow in her mid to late
sixties. Defendant, through a charming young dance instructor, persuaded Plaintiff that
she had the potential to become a professional dancer and, despite the fact that Plaintiff
made little improvement with her dancing, continued to sell hours to Plaintiff that would
eventually go unused. Evidence introduced at trial showed that Defendant, as a method to
sell hours of instruction, aggressively and purposefully would lead their clients to believe
that they had a future in professional dancing. Plaintiff's dance instructor was eventually
fired in 1960 and shortly thereafter, Plaintiff commenced a suit against Defendant. In
effort to get Plaintiff to drop her suit, Defendant re-hired the dance instructor in effort
persuaded Plaintiff to drop the law suit against Defendant. After constant attempts to
persuade Plaintiff, the dance instructor was eventually successful in getting Plaintiff to
drop the suit. Shortly thereafter, Defendant managed to persuade Plaintiff to sign a
release of all claims against Defendant, with a promise that Defendant would be entitled
to a refund for $6,090, which was the amount Plaintiff paid for her last batch of
instructional lessons. Two years later, Plaintiff was persuaded by Defendant to sign
another lease, this one relieving Defendant of the obligation to pay Plaintiff $4,000.
Plaintiff then brought this action alleging fraud and misrepresentation and requesting a
dismissal of the releases. The trial court awarded plaintiff $14,300 in actual damages and
$40,000 in punitive damages.

Issue.

1 Whether the releases relinquished Plaintiff's rights to bring this action.

2 Whether Plaintiff adequately set forth all the necessary elements of a

fraud claim.

Held.
1 The Court held that where a release is procured through fraud or
overreaching, such releases are not binding on the party who seeks to
116 Syester v. Banta
1 impeach them. The Court held that Plaintiff asserted sufficient facts to
show that Defendant's persistent and duplicitous efforts in obtaining the
releases rendered them ineffective.

2 The Court upheld the trial court's determination that Plaintiff adequately
proved each of the required elements for a claim based on fraud. The
Court held that the Plaintiff had alleged sufficient facts to meet the
required elements of a fraud claim. Those elements are: (1) that the
defendants made one or more representations claimed by plaintiff, (2) that
said statements, or one or more of them, were false, (3) that said false
statements or representations were as to material matters with reference to
the entering into the lesson contracts, (4) that the defendants knew the said
representations, or one or more of them, were false, (5) that said
representations were made with intent to deceive and defraud the plaintiff
(6) that the plaintiff believed and relied upon said false representations and
would not have entered into the lesson contracts, except for believing and
relying upon said misrepresentations, and (7) that the plaintiff was
damaged in some amount through relying on said representations.

Discussion. A release agreement that is procured from fraudulent misrepresentations or

overreaching will not relinquish the rights of the party to such agreement.
117 Hill v. Jones
Hill v. Jones

Citation. Arizona Court of Appeals, 151 Ariz. 81, 725 P.2d 1115 (1986), review denied.

Brief Fact Summary. Plaintiffs Warren G. Hill and Gloria R. Hill entered into an
agreement with Defendants Ora G. Jones and Barbara R. Jones to purchase Defendants'
home. Plaintiff sought to rescind the agreement after they learned that the home had
termites.

Synopsis of Rule of Law. Where sellers to a home are aware of facts materially affecting
the value of the property, the sellers are under a duty to disclose such facts.

Facts. Plaintiffs purchased Defendants home for $72,000. Plaintiffs had, on several
occasions, inspected the home and twice noticed potential termite damage to the home.
Although Plaintiffs, who were both familiar with termite damage, noticed holes in the
wood on the patio and a ripple in the floor in the living room they never followed up to
determine the cause of such damages. On one such occasion, Plaintiffs asked Defendants
about a ripple on the floor in the living, Defendants responded that the ripple was caused
by water damage. The house eventually passed termite inspection, and Plaintiffs closed
relying on the inspection. Defendant sellers never disclosed to Plaintiff, or to the termite
inspector, the fact that in the past the house had been infested by termites and that the
house received treatment for such infestations. Upon moving into the house, the wood in
the living room began to crumble, it was determined that such damage was caused by
termites.

Issue. Does a seller have a duty to disclose to the buyer the existence of termite damage,
where such damage is known by the seller, and not the buyer, and materially affects the
value of the property?

Held. The Court held that where the seller of a home knows of facts materially affecting
the value of the property which are not readily observable and are not known to the
buyer, the seller is under a duty to disclose them to the buyer. The Court held that the
existence of termite damage is sufficiently material to warrant disclosure. The Court held
that the standard integration clause of the contract does not provide protection against
non-disclosure.

Discussion. A seller has an affirmative duty to disclose material facts which adversely
affect the value of the property.
118 Williams v. Walker-Thomas Furniture Co.
Williams v. Walker-Thomas Furniture Co.

Citation. United States Court of Appeals, 350 F.2d 445 (D.C. Cir. 1965).

Brief Fact Summary. Appellants, who all purchased household items from Defendant
Walker-Thomas furniture, alleged that the installment contracts that were entered into
with Defendant were unconscionable and should therefore, be unenforceable.

Synopsis of Rule of Law. Where the element of unconscionability is present at the time a
contract is made, the contract should not be enforced.

Facts. Plaintiffs all entered into installment contracts with Defendant for the purchase of
household goods. Plaintiffs were relatively unsophisticated buyers who, at the time of
purchase, had little monthly income. The installment contracts contained boiler plate
language which stated "all payments now and hereafter made by [purchaser] shall be
credited pro rata on all outstanding leases, bills, and accounts due the Company by
[purchaser] at the time each such payment is made." The effect of this provision was to
keep a balance on all items ever purchased under installment by Plaintiffs, so that if
Plaintiff defaulted on payment, Defendants would have the ability to repossess each item,
regardless of how much had actually been paid off, because each item would have an
outstanding balance due until all items were paid off. The lower Court dismissed the case
on the grounds that there was no statutory authority to provide protection to Plaintiffs in
situations such as these.

Issue. Whether the contracts were unconscionable, and thus unenforceable, due to the
boiler plate language on back of the installment contract.

Held. The Court held that where there is an absence of meaningful choice on the part of
one of the parties together with contract terms which are unreasonably favorable to such
party, such contract may be set aside. Meaningful choice can be determined by the
equality of bargaining power and a reasonable understanding of contractual terms that
each party has when entering into the contract. The Court remanded the case to determine
whether, considering the lack of bargaining power held by Plaintiffs, coupled with the
commercially unreasonable terms in the contract, the installment contract was so extreme
as to appear unconscionable and render the contract unenforceable.

Dissent. Would hold that it was the province of the legislature, not the Courts, to
determine when such contracts are unenforceable from a public policy perspective. Many
low income clients purchase items on credit out of necessity, and it is not the Court's role
to determine when such contracts should be annulled.

Discussion. The case signifies that Courts may render a commercially unreasonable
contract unenforceable when entered into between two parties of unequal bargaining
power, especially where one party is commercially unsophisticated.
119 Adkins v. Labor Ready, Inc.
Adkins v. Labor Ready, Inc.

Citation. 303 F.3d 496 (4th Cir. 2002).

Brief Fact Summary. Adkins, individually and on behalf of 63 other employees, brought
suit against Labor Ready in Federal Court, alleging violations of federal and state labor
laws.

Synopsis of Rule of Law. An arbitration agreement that is conditional to employment is

not necessarily unconscionable. Particularly, if an arbitration agreement cannot be proven
to be flawed, a disparity in bargaining position, alone, will not support a finding of
unconscionability.

Facts. In response to Adkins' suit, which was proposed as a class action under the Fair
Labor Standards Act (FLSA), Labor Ready filed a Motion to Compel Arbitration, based
on an agreement which was signed by all employees, upon employment. Adkins
countered, arguing that the employees did not receive consideration for their agreement to
arbitrate, that said agreement was unconscionable, and unenforceable as it was a
condition to employment. The District Court granted the motion and Adkins appealed
alleging the agreement was unenforceable.

Issue. Is an arbitration clause, which is conditional to employment, binding upon

employees of a temporary labor agency?

Held. Yes. Affirmed. In Affirming the ruling of the District Court, the Fourth Circuit
outlined several rules for considering an arbitration agreement:

1 First, the court used a test to determine whether arbitration can be

compelled, ultimately holding that a litigant can compel arbitration if (1)
there is a dispute between it and another party, and they have (2) an
arbitration agreement that encompassing the dispute which (3) the other
party refuses to arbitrate.

2 The Court then considered each of Adkins' arguments. In regards to his

argument that Plaintiffs did not receive consideration for their agreement
to arbitrate, the Court found that the agreement was reciprocal, and that
Defendant had also sacrificed its own claims to arbitration. The reciprocity
of the relationship created consideration.

3 Next the court considered the question of unconscionability. The court

found that, while a disparity of bargaining power did exist, a transaction
cannot be flawed if the contract is not flawed, which this one was not.

4 Finally, the court considered Adkins' contention that the arbitration

agreement was unenforceable as it was a condition to employment. The
120 Adkins v. Labor Ready, Inc.
1 court dismissed this claim, relying on the supremacy of the Federal
Arbitration Act and its liberal policy favoring arbitration.

Discussion. When considering the enforceability of Arbitration agreements, it is

important to consider that there is a strong presumption in favor of enforcement. An
arbitration agreement will fail only if the challenging party can show that it did not
understand and thereby did not consent to the agreement. And, even then, a showing of
unconscionability must usually be coupled with the existence of the agreement.
121 Cooper v. MRM Investment Co.
Cooper v. MRM Investment Co.

Citation. 199 F.Supp. 2d 771 (M.D. Tenn. 2002).

Brief Fact Summary. Plaintiff, an employee of Kentucky Fried Chicken (KFC), brought
suit against Defendant, a KFC franchisee, alleging sexual harassment.

Synopsis of Rule of Law. An arbitration agreement that precludes a cause of action,

thereby stripping a plaintiff of certain claims she could otherwise bring, is
unconscionable.

Facts. As part of her employment contract with Defendant, Plaintiff was asked to sign a
document entitled "Arbitration of Employee Rights," which called for submission of
employment-related claims to arbitration. After Plaintiff brought her sexual harassment
suit in Federal Court, Defendant filed a motion to compel arbitration, seeking to have
Plaintiff's federal claims stayed until the completion of arbitration. Defendant's main
contention is that, because Plaintiff agreed to arbitration as a condition to her
employment, she could not otherwise bring federal question claims against Defendant.

Issue. Does a plaintiff give up her right to bring federal claims against her employer
when she signs an arbitration agreement as a condition of employment?

Held. No. The Defendants' Motion to Compel Arbitration was denied.

1 The Court held, while arbitration agreements are favored and mandatory
arbitration is presumed valid, the waiver of rights associated with such an
agreement must be both knowing and clear. In considering whether
Cooper waived her rights, the Court considered several questions.

2 First, the Court looked to see if there was an agreement between the
parties. Because Plaintiff signed a KFC form, she claimed defendant was
not a party to the agreement and she is not bound to the agreement in this
case. This argument was dismissed, because Defendant was considered to
be an agent of KFC.

3 Next, the Court considered whether there were reasons to set aside the
agreement. At this stage, the Court considered whether the agreement was
unconscionable and thereby unbinding.

4 In this case, the Court found the agreement was unconscionable because
it required Plaintiff to waive her rights to bring certain federal claims, in
favor of arbitration. Particularly, because Plaintiff was desperate for
employment, she was put in an unequal position when signing the
agreement, regardless of the fact that KFC also agreed to arbitration
(which was favorable to it). The Court also held that the cost of arbitration
made enforcement of the agreement unconscionable.
122 Cooper v. MRM Investment Co.
Discussion. While there is a presumption in favor of arbitration agreements, a plaintiff
may not be compelled to arbitrate when she can show a disparity in her position that
would render the agreement unconscionable.
123 Valley Medical Specialists v. Farber
Valley Medical Specialists v. Farber

Citation. 982 P.2d 1277 (Ariz. 1999).

Brief Fact Summary. This case deals with the strong public policy against upholding
non-compete clauses in employment contracts, particularly when they may inhibit the
physician-patient relationship.

Synopsis of Rule of Law. While a term in an agreement may not be facially

unconscionable, it may still be regarded as contra bonus mores, and be considered
unenforceable as such.

Facts. Defendant, an internist and pulmonologist who specialized in the treatment of

AIDS and HIV-positive patients and performing brachytherapy on cancer patients, was
employed by Plaintiff Valley Medical Specialists (VMS). The parties entered into an
employment agreement, which contained a restrictive covenant that prohibited Defendant
from competing in the practice of medicine for a period of three (3) years, anywhere
within a five mile radius of any of Plaintiffs' business locations. After several years,
Defendant left Plaintiffs' employ, and began practicing medicine within the area defined
by the restrictive covenant. Plaintiff brought suit seeking an injunction enforcing the
covenant. The Trial Court denied the injunction, finding the covenant to be in violation of
public policy and, alternatively, too broad to be enforceable. The intermediate appellate
court reversed, modifying the covenant so that it could be enforced, and Defendant
appealed to the Arizona Supreme Court.

Issue. Can a restrictive covenant be enforced when doing so would inhibit the doctor-
patient relationship, in violation of public policy?

Held. No. Reversed. Trial Court's judgment reinstated.

1 In reversing the judgment of the intermediate appellate court, the

Arizona Supreme Court held that the public policy implications (i.e.
restriction on the practice of medicine) outweighed the Plaintiff's
protectable interest the restrictive covenant. Particularly, any covenant
restricting the practice of a physician also has a negative impact on a
patient who is depending on that physician. Therefore, while a restrictive
covenant may protect the interest of an employer, it will not be upheld to
the extent that it prejudices the interest of a patient.

Discussion. When a non-compete agreement applies to a physician, it can have the

impact of restricting the practice of medicine, which can be adverse to a patient. Such a
restrict covenant will be enforceable to the extent that it does not affect an innocent third
party, but not beyond that threshold.
124 Borelli v. Brusseau
Borelli v. Brusseau

Citation. 12 Cal. App. 4th 647, 16 Cal. Rptr. 2d 16 (1993).

Brief Fact Summary. Appellant Borelli, entered into a contract with her late husband to
provide nursing care for him at home in exchange for property. Appellant's husband did
not leave her the promised property in his will. Appellant is bringing this claim against
Appellee Brusseau, also the executor of her husband's estate, to recover the promised
property.

Synopsis of Rule of Law. Contracts between spouses to provide care during illness in
exchange for compensation violate public policy.

Facts. Appellant and her late husband entered into a prenuptial agreement. After being
hospitalized with heart problems, Appellant's husband became concerned about his health
and told Appellant he intended to leave her an interest in a lot, a life estate in a
condominium, a twenty-five percent interest in Borelli Meat Co., cash remaining in all of
his bank accounts at his death, costs of educating Appellant's daughter, all of his interest
in a residence, all furniture in the residence, his interest in a partnership, and health
insurance for Appellant and her daughter.

Later, Appellant's husband suffered a stroke. He indicated to Appellant that he did not
want to be in a hospital or nursing home. So her husband could stay at home, Appellant
agreed to care for him in exchange for the aforementioned property. Appellant cared for
her husband until his death, but her husband's will did not give her the property he
promised to her.

Issue. Does a contract for a spouse to provide care for an ill spouse in exchange for
compensation violate public policy?

Held. Yes. A contract for a spouse to provide care for an ill spouse in exchange for
compensation violates public policy.

1 Spouses have a duty to support each other. This duty includes caring for
an ill spouse. Because a spouse already has a duty to provide care for an ill
spouse, to allow a spouse to contract for compensation in exchange
providing that care would violate public policy.

2 Appellant argues that the public policy invalidation of such contract is

based on "outdated views of the role of women and marriage." The Court
disagrees pointing out that public policy invalidation has been applied to
both husbands and wives in various areas of law.

Dissent. The dissenting opinion disagrees with the majority on several points. First, the
dissent does not find a preexisting duty for spouses to provide the type of nursing care
involved in the present case. Second, the dissent argues that the policy is inconsistent
with modern attitudes and mores. Third, the dissenting opinion argues that spouses
125 Borelli v. Brusseau
should be able to contract with each other in the same way as non-married persons.
Fourth, the dissent makes a distinction between the duty to care for an ill spouse and the
duty to personally care for an ill spouse

Discussion. In the present case, the Court holds that a contract between Appellant and her
husband for Appellant to care for him in exchange for property violates public policy.
126 R.R. v. M.H. & another
R.R. v. M.H. & another

Citation. 426 Mass 501, 689 N.E.2d 790 (1998).

Brief Fact Summary. Plaintiffs, M.H. & another, entered into a surrogacy agreement
with Defendant, R.R. Defendant changed her mind prior to giving birth and expressed a
desire to keep the child.

Synopsis of Rule of Law. Surrogacy agreements that compensate the birth mother
directly, provide compensation in excess of expenses, and obtain the birth mother's
consent to a custody agreement prior to birth violate public policy as evidenced in the
adoption statutes and are unenforceable.

Facts. Plaintiff father and Defendant mother are the biological parents of a child.
Plaintiffs entered into a surrogacy contract with Defendant. Defendant met Plaintiffs
through a corporation, which provides surrogate services for infertile couples. Both
parties went through the corporation's evaluation process including submitting to
evaluation by a psychologist. The parties both signed a surrogate parenting agreement.
Defendant consulted an attorney prior to signing the agreement. The agreement provided
compensation for Defendant for conceiving, carrying and giving birth. The agreement did
not require Defendant to terminate her parental rights to the child. However, if Defendant
sought custody or visitation of the child, Defendant would have to reimburse Plaintiffs
for the compensation provided. Plaintiffs made the payments as required. Prior to the
birth of the child, Defendant changed her mind and wanted to keep the child. Defendant
returned the last payment, but did not reimburse Plaintiffs for the previous payments.

Issue. Is the surrogacy agreement enforceable?

Held. No. The surrogacy agreement is not enforceable.

1 The Court looks to adoption statutes for guidance, but note that adoption
statutes do not directly apply, as the present case does not involve
termination of parental rights and adoption.

2 Adoptive parents are permitted to pay the expenses of the birth, but may
not make payment directly to the birth mother.

3 The Court finds that the agreement in the present case involves
compensation for more not just expenses, but also for relinquishing
custody. Because the adoption statutes prohibit payment to the birth
mother or payment beyond expenses, the Court holds that an agreement to
relinquish custody in exchange for compensation should not be considered
in determining child custody.
4 Adoption statutes also provides that the birth mother's consent to a
custody agreement may not be made prior to a reasonable time after the
birth. The
127 R.R. v. M.H. & another
1 Court holds that likewise in this case, Defendant's consent to a custody
agreement prior to the birth is ineffective.

2 Because the surrogacy agreement is inconsistent with the adoption

statutes by providing compensation beyond expenses and obtaining
Defendant's consent to custody prior to birth, the Court holds that the
agreement violates public policy.

3 The Court briefly dismisses Defendant's argument that the agreement

was unconscionable under the circumstance.

Discussion. In the present case, the Court holds that the surrogacy agreement violates
public policy as evidenced by the adoption statutes.
128

CHAPTER VIII.
Justification For
Nonperformance:
Mistake, Changed
Circumstances, And
Contractual
Modifications
129 Lenawee County Bd. of Health v. Messerly
Lenawee County Bd. of Health v. Messerly

Citation. 331 N.W.2d 203 (Mich. 1982).

Brief Fact Summary. Shortly after purchaser bought property for the purpose of
generating rental income, the property was condemned as unfit for human habitation.

Synopsis of Rule of Law. Whether rescission is the proper remedy to a mutual mistake
should be determined on a case-by-case basis.

Facts. The Appellants, William and Martha Messerly (Appellants), owned an apartment
building, which they sold to the Appellees, Carl and Nancy Pickles (Appellees), who
hoped to use the building as rental property. The land contract contained a provision
stating that the purchaser agreed to accept the property "as is." Soon after taking
possession, Appellees discovered raw sewage seeping out of the ground. The Lenawee
County Board of Health condemned the property and initiated suit to obtain a permanent
injunction proscribing human habitation. Appellants then filed a cross-complaint against
Appellees seeking payment on the land contract. Appellees counterclaimed seeking
rescission of the contract based on the mutual mistake of the parties that the property was
fit for human habitation and could therefore generate rental income. The trial court found
against the Appellees. The Court of Appeals found that the mutual mistake went to a
basic element of the contract and granted rescission.

Issue. Is rescission a proper remedy when a contract was formed due to mutual mistake?

Held. No, in the instant case. Judgment reversed.

1 Whether rescission is the proper remedy to a mutual mistake must be

determined on a case-by-case basis

2 The court found that the mistake affected the essence of the contractual
consideration, as both parties thought they were contracting to purchase
and sell income-generating property.

3 The court also found that rescission is not proper in this case because the
parties did not equally share the blame. Instead, the "as is" clause in the
purchase and sale agreement shifted the risk to the purchaser.

Discussion. The court began its analysis by examining the landmark "barren cow" case,
where mistake was defined as "not of the mere quality, but [going] to the very nature
of the thing." The court found that although the mistake in the instant case involved the
value of the property, it was not a collateral mistake because the fact that the property
was to be used to generate rental income went to the essence of the transaction. Next the
court determined whether rescission would be proper under these facts. The court looked
to the parties to determine where the blame fell because rescission may be proper where
the parties equally share the blame for the mistake. The court found that the blame could
130 Lenawee County Bd. of Health v. Messerly
not be shared equally due to the "as is" clause, which shifted the blame to the purchaser.
Therefore, rescission was not proper.
131 Wil-Fred's, Inc. v. Metropolitan Sanitary District
Wil-Fred's, Inc. v. Metropolitan Sanitary District

Citation. 372 N.E.2d 946 (Il. App. Ct. 1978).

Brief Fact Summary. A construction company submitted a bid on a contract and then
attempted to withdraw the bid when it discovered its calculations were based on a
subcontractor's error.

Synopsis of Rule of Law. Rescission is proper where a unilateral mistake concerns a

material feature of the contract, the mistake occurred despite the fact that reasonable care
was used and the mistake was so grave that it would be unconscionable to enforce the
contract.

Facts. The Plaintiff, Wil-Fred's, Inc. (Plaintiff), submitted a bid and a $100,000 security
deposit in response to the Defendant, Metropolitan Sanitary District's (Defendant),
advertisement seeking contractors for the rehabilitation of sand drying beds at its plant.
The estimated cost of the work, as stated in the advertisement was $1,257,000.00.
Plaintiff submitted the low bid of $882,600. Plaintiff's bid included the bid of a
subcontractor with whom Plaintiff had worked several times and whose work Plaintiff
found to be performed skillfully. The proposal form that Defendant sent to Plaintiff
contained a clause stating that the proposal was not be withdrawn or cancelled or the
Defendant will retain the security deposit. Plaintiff then learned that its subcontractor
made an error in submitting its bid to Plaintiff and that performing the contract at that
price would force the subcontractor into bankruptcy. With this information, Plaintiff
attempted to withdraw its bid. Defendant rejected Plaintiff's withdrawal. Plaintiff then
filed for a preliminary injunction and rescission of the contract.

Issue. Can a unilateral mistake justify rescission of a contract?

Held. Yes. Judgment granting the preliminary injunction and return of the security
deposit affirmed.

1 In the instant case, the error was material, the consequences of the error
were grave, and a substantial hardship would result if the contract were
enforced, rendering it unconscionable to do so.

2 The court also found that the error was caused despite the use of
reasonable care.

Discussion. The court made its decision based on the facts surrounding the error. It
examined the trial court's record to conclude that Plaintiff met the above standard for
rescission with clear and positive evidence. The evidence showed that the error was grave
since the subcontractor would lose $150,000. Also, the Defendant had not changed its
position since Plaintiff promptly notified Defendant of the error and Defendant could still
accept the next lowest bid. Furthermore, because the discrepancy between Plaintiff's offer
and the estimated cost in the advertisement and the offers made by other contractors,
132 Wil-Fred's, Inc. v. Metropolitan Sanitary District
Defendant should have been put on notice of the error. In addition, the court reasoned that
Plaintiff acted in good faith and was reasonable in relying on the subcontractor's
estimation based on their past business relationship. Finally, the amount of money that
either the subcontractor or Plaintiff stood to lose if the contract was enforced was
substantial, causing the unilateral mistake to be quite grave.
133 Karl Wendt Farm Equip. Co. v. International Harvester Co.
Karl Wendt Farm Equip. Co. v. International Harvester Co.

Citation. 931 F.2d 1112 (6th Cir. 1991).

Brief Fact Summary. This case involves the breach of a franchise agreement due to the
downturn of the farm market.

Synopsis of Rule of Law. Mere economic loss is not sufficient to excuse performance on
grounds of impracticability or frustration of purpose.

Facts. The Plaintiff, Karl Wendt Farm Equipment Co. (Plaintiff), entered into a franchise
agreement with the Defendant, International Harvester (Defendant), establishing Plaintiff
as a dealer of Defendant's farm equipment. The agreement specified the terms under
which the contract could be terminated. Thereafter, the farm equipment market suffered a
recession and the Defendant suffered substantial losses. The Defendant decided to sell its
farm equipment division to J.I. Case Co. (Case) and Tenneco Co. (Tenneco). Case and
Tenneco did not acquire Defendant's franchise network, but it did receive access to the
dealers, most of whom received a franchise from Case. Plaintiff did not receive a
franchise from Case and therefore sued Defendant, claiming breach of contract for loss of
his franchise. Defendant argued impracticability and frustration of purpose. A directed
verdict was found for Plaintiff.

Issue. Does a change in economic circumstances, such as loss of profit or a downturn in

the market, excuse performance on the grounds of impracticability or frustration of
purpose?

Held. No. Judgment reversed and remanded to determine the question of damages.

1 Although the Michigan Supreme Court recognizes the defense of

impracticability, as a matter of law, this defense does not excuse
performance due to mere economic difficulties, as in the instant case.

2 In order for a supervening event to discharge a duty, the non-occurrence

of such event must have been a basic assumption of the parties when they
made the contract. The continuation of existing market conditions and
changing financial situations are not such assumptions.

3 In order to use the doctrine of frustration of purpose to excuse

performance, the purpose frustrated by the supervening event must have
been the principal purpose of the contract, the frustration must have been
substantial and the frustrating event must have been a basic assumption of
the contract.

4 The principal purpose in the instant case was to establish a dealership. It

was not to provide mutual profitability.
134 Karl Wendt Farm Equip. Co. v. International Harvester Co.
Dissent. The collapse of the farm market may have been such a severe and unforeseen
disaster that performance should have been excused and the jury's verdict should have
been affirmed.

Discussion. The court examined Michigan case law and the Restatement to define the
doctrines of impracticability and frustration of purpose. "Impracticability means more
than impracticality. A mere change in the degree of difficulty or expense due to such
causes as increased wages, prices of raw materials or costs of construction, unless well
beyond the normal range, does not amount to impracticability." Regarding frustration of
purpose, "it is not enough that the transaction has become less profitable" and the
"frustration must be so severe that it is not fairly regarded as within the risks assumed
under the contract." The court then applied these doctrines to the instant case and found
that they should not be used to excuse Defendant's performance of his contractual
obligations. The court also reasoned that Defendant had alternatives, such as terminating
its Dealer Agreements under the termination provisions of the contract, which could have
precluded his unilaterally terminating the contract.
135 Mel Frank Tool & Supply, Inc. v. Di-Chem Co.
Mel Frank Tool & Supply, Inc. v. Di-Chem Co.

Citation. 500 N.W.2d 802 (1998).

Brief Fact Summary. This is an action for breach of lease, instituted when Defendant, a
chemical distributor, vacated Plaintiff/Lessor's premises after city officials informed
Defendant that it could not store all of its materials on the leased premises.

Synopsis of Rule of Law. This case stands for the proposition that a contract can only be
avoided under the idea of frustration of purpose, when an obligee's entire purpose for
entering into a contract is frustrated.

Facts. Di-Chem entered into a three-year agreement with Mel Frank to lease a storage
and distribution facility. Roughly one year into the lease, the fire chief, for the City of
Council Bluffs, inspected the property and informed Di-Chem that it was in violation of a
city ordinance prohibiting the storage of hazardous materials. Because Di-Chem was a
chemical company, Di-Chem felt the ordinance (which was enacted after the signing of
the lease) frustrated its business needs for the facility, and vacated the premises. Mel
Frank brought suit for breach of lease and property damage, which Di-Chem answered,
asserting several defenses including mutual mistake, illegal contract, failure to mitigate
damages, fraud in inducement and impossibility. The court found that Mel Frank could
not have known that the chemicals were classified as hazardous, and found for Plaintiff.
Defendant appealed.

Issue. Is a contract subject to rescission, under the rationality of frustration of purpose,

when only part of the contractual performance is made unlikely by a supervening cause?

Held. No. Affirmed.

1 In upholding the lower court's judgment the Iowa Supreme Court found
that the doctrines of impossibility and frustration both stand on the
premise that a contract was made with a specific purpose in mind.

2 In this case, a lease was made for the storage of chemicals; however, the
purpose to store hazardous chemicals was never discussed between the
parties. The Court based its holding on the fact that non-hazardous
chemicals could still be stored on the premises and held for the Plaintiff.

Discussion. When a party asserts the defense of frustration of purpose, they must also be
able to prove that their particular purpose was encompassed in the making of the
agreement.
136 Alaska Packers' Assoc. v. Domenico
Alaska Packers' Assoc. v. Domenico

Citation. 117 F. 99 (9th Cir. 1902).

Brief Fact Summary. This case involves a contract modification to a services contract
where the workers demanded increased compensation to perform the same duties as
specified in the original contract.

Synopsis of Rule of Law. When one is contractually obligated to perform certain duties,
a demand for increased compensation to perform these same duties is not supported by
sufficient consideration.

Facts. The Plaintiffs , Domenico and other fisherman (Plaintiffs), entered into a contract
with the Respondent, Alaska Packers' Association (Respondent), to travel on a fishing
vessel to Alaska and then work during the fishing season of 1900. The contract was
entered into in San Francisco, prior to the men's departure for Alaska. The terms stated
that Respondent was to pay each Plaintiff $50 for the fishing season and an additional
two cents for each red salmon he helped catch. Certain workers entered into a second
contract modifying the payment of $50 for fishing season to $60. Once they arrived in
Alaska, the Plaintiffs stopped work and demanded a $100 for operating the vessel to and
from Alaska, instead of the $50 or $60 stated in the original contract. They threatened to
return to San Francisco if this demand was not met. Because Respondent could not find
replacement workers, the superintendent of Alaska Packers entered into new contracts
with Plaintiffs, conceding to their demands. However, the superintendent told the
Plaintiffs that he had no authority to make such a contract. On their return to San
Francisco, Plaintiffs demanded payment in accordance with the terms of the new
contract.

Issue. Is a contract modification, which seeks to increase wages to be paid for the same
duties as stated in the original contract, valid?

Held. No. Judgment reversed. This Court found that a demand for increased wages where
there is a pre-existing duty to perform certain obligations, is not supported by
consideration.

Discussion. The court found that the Plaintiffs were already obligated by contract to
perform their duties. These duties had not changed in anyway, as the original contract
stated that they were to travel by vessel to Alaska. Therefore, no consideration existed to
support Plaintiffs' demand for increased wages. (The lower court had rejected the
Plaintiffs' argument that the fishing nets were rotted, entitling them to increased wages.)
The court also reasoned that allowing such a modification would encourage men to
abandon their contractual obligations in bad faith.
137 Kelsey-Hayes Co. v. Galtaco Redlaw Castings Corp.
Kelsey-Hayes Co. v. Galtaco Redlaw Castings Corp.

Citation. 749 F. Supp. 794 (E.D. Mich. 1990).

Brief Fact Summary. This case involves a requirements contract where the supplier
threatened to stop production if the buyer did not agree to pay a higher price for the
product.

Synopsis of Rule of Law. A contract is voidable if made under economic duress.

Facts. The Plaintiff, Kelsey-Hayes (Plaintiff), entered into a requirements contract for the
purchase of castings, with the Defendant, Galtaco Redlaw Castings Corp. (Defendant).
The contract was for a three-year term and it included fixed price terms. The Defendant
then began to suffer financial difficulties and made an offer to its customers that it would
keep operating in exchange for a price increase of thirty percent. The Plaintiff was not
able to find an alternative source of casings so it accepted Defendant's offer, although it
protested that this offer amounted to a breach of contract. Defendant's other customers
did find alternate supplies of castings. Therefore, Defendant offered Plaintiff an
additional thirty percent increase in exchange for its remaining in operation solely for
Plaintiff's benefit. Again, Plaintiff felt it had no choice but to accept, as it still had not
found a reasonable alternate source for castings. Plaintiff also feared that if it did not
accept, it would cause its major client, Ford Motor Co., to stop production and destroy
Plaintiff's business reputation. Plaintiff sued for breach of contract, asking for a
declaratory judgment releasing it from paying the increased prices. Defendant moved for
summary judgment, contending that the price modification invalidated the previous
contract.

Issue. Must a person be subjected to an unlawful act such as threat of a tort or crime in
order to make a claim of duress?

Held. No. Motion for summary judgment denied. Declaratory judgment granted in favor
of Plaintiff.

1 Michigan courts recognize the doctrine of economic duress and

Defendant's offer to Plaintiff amounted to economic duress.

2 Economic duress can exist even in the absence of criminal or tortuous

activity, so long as assent is induced by an improper threat and the victim
is left with no reasonable alternative.

Discussion. The court looked to Michigan law to define economic duress. In the instant
case, it seemed clear that Plaintiff was left with no reasonable alternative and had no
choice, but to assent to Defendant's offer. Although Plaintiff assented, it also vigorously
complained that it viewed Defendant's offer to be a breach of contract, giving Defendant
notice that Plaintiff did not freely enter into the modification. The court noted that it
would have been inadequate for Plaintiff to accept the breach and then sue for damages,
138 Kelsey-Hayes Co. v. Galtaco Redlaw Castings Corp.
as Plaintiff would have then been forced to stop production and risk damaging its
business reputation. Finally, the court examined the UCC and found that its language
supported the economic duress doctrine.
139 Brookside Farms v. Mama Rizzos's, Inc.
Brookside Farms v. Mama Rizzos's, Inc.

Citation. 873 F. Supp. 1029 (S.D. Tex. 1995).

Brief Fact Summary. This case involves a requirements contract for the shipment and
purchase of basil, which was subsequently modified by oral agreement.

Synopsis of Rule of Law. The Statute of Frauds (SOF) will not bar an oral contract
modification where one party reasonably relied upon the modification and where the oral
agreement did not materially alter the terms of the original agreement.

Facts. The Plaintiff, Brookside Farms (Plaintiff), entered into a requirements contract
with the Defendant, Mama Rizzo's Inc (Defendant). Under the terms of the contract, the
Defendant agreed to buy a minimum amount of basil from the Plaintiff for a one-year
period. The contract contained two price terms, depending on the season. The contract
also contained a clause prohibiting oral modifications. After the contract was executed,
the Defendant orally requested that the Plaintiff remove the stems from basil leaves. The
Plaintiff agreed to this additional duty in exchange for an additional $.50 per pound. The
Defendant promised he would make a note of this agreement on the original contract.
Shortly after, the Defendant discontinued its order for basil leaves for approximately a
two-month period. When the Defendant resumed its purchases, the parties agreed to a
higher price per pound and two price modifications were made to the contract. The
Plaintiff then issued 21-purchase orders and submitted payment for 8 such orders.
Unfortunately, the check was denied for insufficient funds. The Plaintiff then sued the
Defendant for breach of contract claiming that the Defendant refused to accept the
minimum of basil it agreed to under the terms of the requirements contract and that it is
liable for payment for the remaining purchase orders. The Defendant argues that the
Plaintiff breached the contract by raising prices in violation of the clause prohibiting oral
modifications.

Issue. Can a requirements contract for the sale of goods that prohibits oral modifications
be validly modified by an oral agreement?

Held. Yes. The Plaintiff's Motion for Summary Judgment is granted with respect to
claims that the Defendant breached contract. The Defendant's Motion for Summary
Judgment is denied.

1 This Court found that while the SOF bars oral agreements that materially
modify a written contract, oral changes that do not materially alter the
contract are not barred.

2 This Court also found that where an oral modification would be binding
in the absence of the SOF, the oral modification is binding when specific
goods have been received and accepted.
140 Brookside Farms v. Mama Rizzos's, Inc.
Discussion. The court first examined the Texas SOF and its exceptions and reasoned that
the SOF does not bar oral modifications that do not materially change the terms of a
written agreement. The court also looked to the fact that the Defendant promised to
reduce the oral modification to writing by noting it on the original contract. This notation
constituted a valid writing under the SOF; thus, the SOF was satisfied. Also, as the
Plaintiff relied upon the Defendant's promise to make this writing, the oral modification
was also valid by estoppel. The court also looked to the Uniform Commercial Code
(UCC), which codifies the duty of good faith and fair dealings in commercial transactions
and requires merchants to observe reasonable commercial standards.
141

CHAPTER
IX. Rights
And Duties Of
Third Parties
142 Vogan v. Hayes Appraisal Associates, Inc.
Vogan v. Hayes Appraisal Associates, Inc.

Citation. 588 N.W.2d 420 (Iowa, 1999).

Brief Fact Summary. Defendant was hired by MidAmerica Savings Bank (MidAmerica)
to monitor the progress of construction for a new home for the Plaintiffs, Mr. and Mrs.
Vogan. When the contractor defaulted on his contract, and construction expenses overran
the agreed-upon price, Plaintiffs brought suit against Defendant for negligent monitoring
of the funds, as they were the third party beneficiaries of Defendant's agreement with
MidAmerica.

Synopsis of Rule of Law. A third party beneficiary can recover damages when a party in
breach has reason to know that the beneficiary will be harmed by their negligence.

Facts. Plaintiffs obtained a mortgage from MidAmerica for the construction of their new
home. After some time had passed, it became apparent that the appraisal of the property
did not encompass all of the contracting costs and Plaintiffs were forced to sign another
mortgage and expend more of their personal funds. Later, the contractor who had been
hired to construct the house defaulted on the agreement. Plaintiffs brought suit to recover
the funds they had spent in reliance of the appraisals and progress reports made by
Defendant. Plaintiffs recovered judgment in the trial court, which was reversed by the
intermediate appellate court. Plaintiffs then appealed to the Iowa Supreme Court.

Issue. May a third party beneficiary, here the Plaintiffs, recover damages from the breach
of the contract which was to their benefit?

Held. Yes. Reversed.

1 The Iowa Supreme Court reversed the judgment of the appellate court
and reinstated the judgment of the district court, holding that Plaintiffs
could recover as third party beneficiaries.

2 Defendant knew that its services were for Plaintiffs' benefit. The Court
reasoned that the Plaintiffs were injured and entitled to damages because
their expenditures were linked to the improper appraisals and monitoring
done by Defendant.

Discussion. Generally a third party cannot recover against a party with whom they do not
have a contract. However, if the negligent party has reason to know that a third party will
be injured by their breach, and that their performance is being rendered directly to benefit
another party, a third party may be able to recover damages spent as a third-party
beneficiary.
143 Zigas v. Superior Court
Zigas v. Superior Court

Citation. 174 Cal. Rptr. 806 (Cal. App. 1982).

Brief Fact Summary. Tenants sued landlords for damages for charging rents in excess of
those permitted by the landlords' agreement with the Department of Housing and Urban
Development (HUD).

Synopsis of Rule of Law. Tenants of federally funded housing are entitled to initiate a
third-party suit against their landlords when the landlords violate their agreement with
HUD.

Facts. Appellants are tenants of an apartment building, which was financed with a
federally insured mortgage pursuant to the National Housing Act. Under the conditions of
the mortgage, Appellee landlords must contract with HUD to file a maximum rental
schedule. Under this contract, Appellees are not permitted to charge rents higher than
those authorized by HUD. Petitioners contend that their landlords are charging rents in
excess of the approved schedule, amounting to over $2 million. The trial court granted
demurrer as to the third-party cause of action.

Issue. Can tenants of a federally funded housing complex file suit against their landlord
on the ground that the landlord violated its contract with HUD?

Held. Yes. Judgment for demurrer reversed. The court that held Appellants were direct
beneficiaries of the contract between Appellees and HUD and therefore have standing
under Shell.

Discussion. In determining whether the Appellants had standing, the court examined
California law to determine, which standard ought to apply. Under the Shell standard, "a
contract, made expressly for the benefit of a third person, may be enforced by him at any
time before there parties thereto rescind it." The court reasoned that the terms of the
contract between Appellees and HUD were for the express benefit of Appellants, as
tenants, which was supported by the purpose stated in the United States Code. The court
then applied the instant case to the more limited Martinez standard, under which the
manifested intent of the parties determine whether a third-party beneficiary to a
government contract has standing. The court reasoned that the instant case is similar to
Shell as the renters suffered the pecuniary loss, no governmental administrative
procedure was provided for the resolution of the disputes, the parties were liable under
the agreement without limitation and the contract was executed for the sole purpose of
benefiting tenants. Also, upon examination of the HUD agreement, it was apparent that
tenants were intended to be direct, not merely incidental, beneficiaries. In essence,
although the Appellees violated a government contract, by charging excess rents, they
took the money from the tenants, not from the government.
144 Herzog v. Irace
Herzog v. Irace

Citation. 594 A.2d 1106 (Me. 1991).

Brief Fact Summary. This case involves an assignment of proceeds from a personal
injury claim to a physician to pay for medical expenses.

Synopsis of Rule of Law. Proceeds to be received from pending litigation may be validly
assigned.

Facts. Gary Jones (Jones) was injured in a motorcycle accident and retained the
Defendant, Irace (Defendant), to represent him. Jones then injured his shoulder and went
to see the Plaintiff, Dr. Herzog (Plaintiff), who determined that Jones needed surgery on
his shoulder. Jones wrote a letter stating that he "request[ed] payment to be made directly
from settlement of a claim currently pending for an unrelated incident to John, Herzog,
D.O." Plaintiff informed Defendant about this assignment and performed the surgery.
Thereafter, Jones instructed Defendant not to disburse the proceeds to Plaintiff. Jones sent
a check to Plaintiff. However, the check was returned for insufficient funds. Plaintiff sued
to enforce the assignment.

Issue. Can future proceeds from pending litigation be validly assigned to a third-party?

Held. Yes. Judgment affirmed.

1 The court held that this assignment was valid because Jones' letter gave
no indication that he wished to retain control over the funds.

2 The court also held that enforcing the assignment did not interfere with
Defendants' ethical obligations as attorneys.

Discussion. The court noted that an assignor must not retain any control over the right of
the assigned funds. It found that Jones did not retain any such control when he requested
that the payment be made to Plaintiff. Also, Defendant had notice of the assignment and
therefore was obligated to enforce it. The court also examined the Maine Bar rules and
found no ethical rule barring a lawyer from assigning his client's proceeds from a pending
lawsuit to a third party.
145 Sally Beauty Co. v. Nexxus Prods. Co.
Sally Beauty Co. v. Nexxus Prods. Co.

Citation. 801 F.2d 1001 (7th Cir. 1986).

Brief Fact Summary. This case involves an exclusive distribution contract, which was
cancelled when a competitor acquired the distributor.

Synopsis of Rule of Law. A contract may not be assigned to a direct competitor, or to a

wholly-owned subsidiary thereof, without the obligee's consent.

Facts. On August 2, 1979, Best Barber & Beauty Supply Company, Inc. ("Best Barber")
entered into a contract with the Defendant, Nexxus Products Company (Defendant),
under which Best Barber was appointed the exclusive distributor of Nexxus hair care
products to hair stylists throughout Texas. The agreement contained a provision stating
that termination of the distribution relationship could only occur on the anniversary date
of the appointment of distributor and only with 120 days notice. In July 1981, the
Plaintiff, Sally Beauty (Plaintiff), acquired Best Barber in a stock purchase transaction.
Under this transaction, the Plaintiff was to succeed to all of Best Barber's contractual
rights and interests. However, the Plaintiff was a wholly-owned subsidiary of Alberto-
Culver, a direct competitor of the Defendant's. Defendant, therefore, terminated the
distribution agreement. The trial court found that the distribution was not assignable
because it was a personal services agreement.

Issue. Is a contract assignable to direct competitor or a wholly-owned subsidiary of a

competitor?

Held. No. Judgment affirmed.

1 The court disagreed with the lower court and found that this contract was
not contract dealing with personal services. Instead, it was primarily a
contract for the sale of goods.

2 The duty of performance under an exclusive distributorship may not be

delegated to a competitor in the marketplace without the obligee's consent.

Dissent. The Defendant may have had reasonable grounds for insecurity when a direct
competitor acquires its distributor. However, its remedy was not to cancel the contract.
Instead, under the Uniform Commercial Code (UCC), the Defendant should have asked
for assurances of due performance.

Discussion. The court reasoned that this contract was primarily for the sale of goods and
therefore the UCC applied. While the UCC does permit delegation of contractual duties,
it recognizes that there are times when "an obligor will find it convenient or even
necessary to relieve himself of the duty of performance under a contract." The UCC also
requires that best efforts will be used to promote the sale of goods. The court examined
the only Texas case on point, McKinnie v. Milford, 597 S.W. 2d. 953 (Tex. Civ. App.
1980), where the court found that the UCC bars delegation of duties when performance
146 Sally Beauty Co. v. Nexxus Prods. Co.
of such duties would be a "substantially different thing" than what was bargained for. In
the instant case, because a direct competitor of the Plaintiff had acquired Best Barber, the
court concluded that performance of the duties by the Defendant would be a substantially
different thing than what was bargained for. The Defendant would not be able to rely on
the Plaintiff to use its best efforts to promote its product when the Plaintiff is owned by
the Defendant's competitor.
147

CHAPTER X.
Consequences Of
Nonperformance: Material
Breach, Anticipatory
Repudiation, And Express
Conditions
148 Jacob & Youngs, Inc. v. Kent
Jacob & Youngs, Inc. v. Kent

Citation. 129 N.E. 889 (N.Y. 1921).

Brief Fact Summary. In this case, pipe of similar quality, but of a different brand name
than that specified in the contract, was used in the building of a house.

Synopsis of Rule of Law. Where a contract has been substantially performed and the
cost of replacement would be grossly out of proportion to the difference in value, the
correct measure of damages is the difference in value.

Facts. The Plaintiff, Jacob & Youngs, Inc. (Plaintiff), built a country house for the
Defendant, Kent (Defendant). The Plaintiff brought suit to recover the balance due from
the Defendant. However, after the Defendant occupied the dwelling, he noticed that the
pipe used for the plumbing was not Reading pipe, the brand specified in the contract. The
pipe used was of similar quality, but the Defendant directed the Plaintiff to correct the
defect. The defect could only be repaired at a substantial expense, as it would require
demolition of substantial parts of the home. In the lower court, the Plaintiff was not
permitted to present evidence stating that the pipe used was essentially the same thing as
that specified in the contract.

Issue. Is the difference in value the proper measure of damages when there has been
substantial performance of a contract?

Held. Yes. Judgment affirmed.

1 The court found that the piping used was of similar quality to the
Reading pipe specified in the contract.

2 The court also found that the failure to use the specified brand of pipe
was not intentional or fraudulent, but a mere oversight.

3 The court also found that the cost to repair the defect would be grossly
out of proportion to the difference in property value resulting from the
defect. Therefore, the proper measure of damages was the difference in
value caused by the error.

Dissent. The dissent argues that the Plaintiff did not perform the contract as specified and
the Defendant has a right to have the terms of its contract met.

Discussion. Justice Cardozo began this opinion by examining the difference between
promises and conditions. He reasons that where omissions are trivial and inconsequential
they may be considered an independent promise and not a breach of a condition.
However, some promises are so integral to the substance of the contract that they must be
considered a condition of the contract. Whether something is a condition or a promise
must be determined by considerations of justice and the intentions of the parties at the
time they formed the contract. Justice Cardozo also recognizes that courts look to
149 Jacob & Youngs, Inc. v. Kent
considerations of "fairness and equity" in determining whether something is an
inconsequential promise or a contractual condition. Further, New York courts follow the
liberal view and also consider the surrounding circumstances. Specifically, the courts
"weigh the purpose to be served, the desire to be gratified, the excuse for deviation from
the letter, the cruelty of enforced adherence." In the instant case, the cost of replacing the
pipes would be great but the difference in value caused by the use of the different brand
of pipe would be nominal at most. Also, the use of the different pipe was a result of mere
oversight, it was not an intentional or fraudulent deviation. Therefore, Justice Cardozo
concluded that the cost of completion would be grossly out of proportion to the good to
be attained from correcting the defect.
150 Sackett v. Spindler
Sackett v. Spindler

Citation. 56 Cal. Rptr. 435 (Cal. Dist. Ct. App. 1967).

Brief Fact Summary. This case involves a contract to buy stock where the buyer
repeatedly did not render payment by the due date, causing the seller to repudiate the
contract.

Synopsis of Rule of Law. Repudiation of a contract is justified only where the breaching
party's breach constituted a total or material breach, not merely a partial breach.

Facts. The Plaintiff, Sheldon Sackett (Plaintiff), entered into a contract to buy stock from
the Defendant, Paul Spindler (Defendant). The contract stipulated that the Plaintiff was to
make three payments due on specified dates. The Plaintiff made the first payment on time
and the second payment a few days after it was due. He rendered a check for the third
payment prior to its due date, but this check was drawn on insufficient funds. The
Plaintiff informed the Defendant that he would be able to pay the balance by September
22. The Defendant notified the Plaintiff that if he did not receive the funds by that date,
he would not consider completing the sale and he would assess damages for the Plaintiff's
breach of contract. Plaintiff failed to make the payment on September 22 and the
Defendant extended the due date until September 29. Again, the Plaintiff failed to make
the payment on time. On October 4, the Plaintiff sent a telegram to the Defendant stating
that he was now "ready, eager and willing" to complete the transaction. On October 5, the
Defendant wrote a letter to the Plaintiff stating that he was unwilling to complete the
transaction due to the Plaintiff's delay in performing the contract.

Issue. Is repudiation of a contract justified where the other party has materially breached
the contract?

Held. Yes. Judgment affirmed.

1 Repudiation is justified where a material or total breach has occurred.

2 In the instant case, the court found that the Plaintiff's failure to tender the
balance due under the contract constituted a material breach.

Discussion. The court examined The Restatement of Contracts to determine whether the
breach was material. It reasoned that although, the Plaintiff did make the first two
payments, the Plaintiff's failure to remit the third payment when due was a material
breach because it was caused by gross negligence or willful conduct. It also examined the
facts to determine that the Defendant was justified in repudiating because the Plaintiff's
behavior gave rise to uncertainty that he would fulfill his obligations and the evidence
was sufficient to infer that the Plaintiff never intended to remit the payment as required
by the contract.
151 Truman L. Flatt & Sons Co. v. Schupf
Truman L. Flatt & Sons Co. v. Schupf

Citation. 657 N.E.2d 640 (1995).

Brief Fact Summary. This case involves a land contract where the buyer attempted to
modify the price term and when the seller rejected his proposed modification, then
elected to proceed with the original terms of the contract.

Synopsis of Rule of Law. A party may retract their repudiation unless the other party
materially changed position in reliance on this repudiation or the other party indicates
that he considers the repudiation to be final.

Facts. The Plaintiff, Truman L. Flatt & Sons Co. (Plaintiff), entered into a land contract
with the Defendant, Lee Schupf (Defendant), to purchase a parcel of land at a price of
$160,000. The contract provided that it was contingent upon the buyer obtaining
permission from the City Counsel to construct and operate an asphalt plant. The Plaintiff
sent a letter to the Defendant stating that it was withdrawing its zoning request because it
seemed clear that the City Counsel would not approve it. In the letter, the Plaintiff asked
the Defendant if he would be willing to sell the property for a reduced amount, since the
Plaintiff believed the property was worth less as it was currently zoned. The Defendant
rejected this offer. The Plaintiff responded that it planned to proceed with the purchase in
accordance with the original terms of the contract. The Defendant contended that the
Plaintiff's failure to waive the zoning requirement and to elect to proceed under the
contract when the rezoning was denied, along with the Plaintiff's modified offer, voided
the contract. The Plaintiff filed suit seeking specific performance. The Defendant moved
for summary judgment, which was granted on the ground that the Plaintiff effectively
repudiated the contract.

Issue. Is a contract repudiation effective when the repudiation was retracted prior to the
seller's changing position or notifying the buyer that they believed the repudiation to be
final?

Held. No. Judgment reversed and remanded.

1 A repudiation must be clear and unequivocal.

2 In the instant case, the Plaintiff's letter to the Defendant seeking to

modify the price term in the contract was not a clear and unequivocal
repudiation.

Discussion. The court examined the language of the Plaintiff's offer and found that it did
not amount to repudiation because the offer did not clearly threaten nonperformance. The
court analyzed the Restatement (Second) of Contracts to determine whether the
repudiation, if there was one, was timely retracted. The court also looked to leading
commentators on contract law to find that the weight of authority stood allowed a
repudiating party to retract the repudiation before the aggrieved party chose to treat the
contract as rescinded or before he materially changed position in reliance on the
152 Truman L. Flatt & Sons Co. v. Schupf
repudiation. If the aggrieved party did not change position, it must indicate to the
repudiating party that it is treating the contract as rescinded. In the instant case, the court
reasoned that the Defendant did not change position in that it did not sell the property to
another party, nor did it even discuss selling the property to another party. Also, the
Defendant never indicated to the Plaintiff that it was treating the contract as rescinded
until after the Plaintiff revoked its repudiation. Further, the court reasoned that even if the
Plaintiff had repudiated the contract, he successfully retracted it because repudiation is
timely retracted if it is retracted prior to the aggrieved party's changing position in
reliance on the repudiation or if it is retracted before the aggrieved party indicates to the
repudiating party that it is considers the repudiation to be final.
153 Hornell Brewing Co. v. Spry
Hornell Brewing Co. v. Spry

Citation. 664 N.Y.S.2d 698 (1997).

Brief Fact Summary. A beverage supplier and marketer terminated a contract with a
distributor after a problematic course of business dealings.

Synopsis of Rule of Law. One party may demand assurances from another party when
there are reasonable grounds for insecurity regarding that party's performance and the
demanding party may suspend its performance until it has received such assurances.

Facts. The Plaintiff, Hornell Brewing Co. (Plaintiff), granted the Defendant, Spry
(Defendant), an exclusive right to distribute Plaintiff's beverages in Canada. Throughout
the parties' relationship, the Defendant failed to remit timely payment for shipments of
the beverage. The Plaintiff asked the Defendant to obtain a line of credit to secure their
relationship. Payment in the amount of $79,316.24 was due to the Plaintiff by May 2,
1994, upon receipt of which the Plaintiff agreed to ship up to $300,000 worth of product
to the Defendant. The Plaintiff did not receive payment until May 9, 1994, at which time
the Defendant ordered a shipment in excess of the authorized amount of $300,000.
Meanwhile, the Plaintiff learned that the Defendant's Canadian operation was essentially
a sham. The Plaintiff informed the Defendant that they would not ship any more goods to
the Plaintiff until they received a letter confirming the existence of the Defendant's line of
credit. The Defendant did not respond, nor did it send the Plaintiff a copy of its credit
agreement. The Plaintiff instituted this action, seeking a declaratory judgment terminating
all contractual obligations between the parties.

Issue. Is a party entitled to assurances when they have reasonable circumstances to

believe that the other party will not meet its contractual obligations?

Held. Yes. Declaratory judgment granted. The Defendant has no continuing rights with
respect to the Plaintiff's products.

Discussion. Because this case involves the sale of goods, the court looked to the UCC,
which allows one party to demand assurances of due performance where they have
reasonable grounds for insecurity. In the instant case, the court found that the Plaintiff
had sufficient grounds for insecurity, based on the troublesome business relationship and
the Defendant's poor payment history. The court rejected the Defendant's argument that
the Plaintiff may not suspend performance after receiving adequate assurances and that
there was no change of circumstances warranting further assurances. Instead the court
reasoned that there was a change of circumstances in that the Defendant demanded a
shipment of product in excess of the authorized limit. Also, the Defendant's failure to
respond to the Plaintiff's request for assurances amounted to a repudiation, which entitled
the Plaintiff to terminate the agreement.
154 Oppenheimer & Co. v. Oppenheim, Apel, Dixon & Co.
Oppenheimer & Co. v. Oppenheim, Apel, Dixon & Co.

Citation. 660 N.E.2d 415 N.Y. 1995).

Brief Fact Summary. A sublease agreement contained an express condition precedent

that the subleasing party must obtain the landlord's written consent before the sublease
would be valid.

Synopsis of Rule of Law. The doctrine of substantial performance is not available to

excuse the failure to perform an express condition precedent as required by contract.

Facts. The Plaintiff, Oppenheimer & Co. (Plaintiff), entered into a sublease agreement
with the Defendant, Oppenheim, Apel, Dixon & Co (Defendant). The agreement
contained a provision stating "there would be no sublease between the parties unless and
until plaintiff delivered to defendant the prime landlord's written consent to certain tenant
work." This written consent was to be received by February 25, 1987. On February 25,
the Plaintiff informed the Defendant's attorney by telephone that the landlord consented
to the tenant work. The landlord's written consent was not received until March 20, 1987.
On February 26, the Defendant informed the Plaintiff that the sublease agreement was
invalid because the condition requiring written consent was not met. The Plaintiff brought
suit arguing that it had substantially performed the required conditions.

Issue. Is substantial performance available to a defendant who failed to perform an

express condition precedent as required by a contract?

Held. No. Judgment reversed. Substantial performance is not applicable to excuse the
nonoccurrence of an express condition precedent.

Discussion. The court reasoned that policy considerations support the freedom to contract
where contract language is clearly stated. The condition that the Defendant obtain the
landlord's written consent was unambiguously stated through language of condition
("ifthen") in the contract. The court examined the case law and found that it supported
the fact that substantial performance should not be available to excuse the nonoccurrence
of an express condition precedent. The court noted that substantial performance may be
available in cases where the Plaintiff would suffer forfeiture, but that this was not the
case here.
155 J.N.A. Realty Corp. v. Cross Bay Chelsea, Inc.
J.N.A. Realty Corp. v. Cross Bay Chelsea, Inc.

Citation. 366 N.E.2d 1313 (N.Y. 1997).

Brief Fact Summary. A tenant failed to invoke his option to renew by the date specified
in the lease due to his own negligence.

Synopsis of Rule of Law. Where a tenant would suffer a forfeiture, he is entitled to

equitable relief where the default has not prejudiced the landlord and it is a result of an
honest mistake.

Facts. The Plaintiff, J.N.A. Realty Corp. (Plaintiff), entered into a 10-year lease with
Victor Palermo and Sylvester Vascellero. The lease granted the tenants an option to renew
so long as they notified the landlord within six months of the termination date. The
tenants then assigned their lease to the Defendant, Cross Bay Chelsea, Inc. (Defendant).
The Plaintiff authorized the assignment and modified the option to renew clause only
insofar as giving tenant a right to renew the lease for a period of twenty-four years,
instead of ten years. During its tenancy, the Defendant had made substantial
improvements to the property. After the option to renew had lapsed, the Plaintiff informed
the Defendant of this fact. The Defendant then sent the Plaintiff a letter stating its
intention to renew the lease. The Plaintiff refused to honor this letter and instituted
proceedings to recover possession of the property. The Defendant stated they were not
aware of six-month notice provision, although the lower court found that the Defendant
did have chargeable notice of the provision.

Issue. Does a tenant, who failed to adhere to the terms of a lease due to its own mere
negligence, but who will suffer forfeiture if removed from the premises, have a right to
equitable relief?

Held. Yes. Judgment reversed and remanded.

1 The court found that the Defendant would have suffered forfeiture since
it made substantial improvements to the property.

2 The court also found that the Defendant's failure to renew the lease was
due to "mere forgetfulness" and was not an intentional attempt to exploit a
fluctuating real estate market.

3 The court found that it was unclear whether the Plaintiff suffered a
prejudice from the Defendant's oversight and therefore a new trial should
be granted.

Dissent. Equitable relief is only granted in limited circumstances such as where fraud,
mistake, or accident is involved, not mere negligence. The fact that tenant made
substantial investment in the property is not sufficient, standing alone, to grant equitable
relief.
156 J.N.A. Realty Corp. v. Cross Bay Chelsea, Inc.
Discussion. The court examined leading case law in the jurisdiction, which recognizes
that although an option is ineffective if not invoked within the time specified, a tenant is
entitled to equitable relief when he would suffer forfeiture. The court reasoned that
because the Defendant had spent a considerable amount on improvements to the property,
he would suffer forfeiture. The court went on to reason that even though the Defendant
failed to inform the Plaintiff of his intention to renew due to his own negligence, the
Defendant's mistake was made in good faith and his loss would be out of proportion to
the gravity of his oversight.
157 Morin Bldg. Prods. Co. v. Baystone Constr., Inc.
Morin Bldg. Prods. Co. v. Baystone Constr., Inc.

Citation. 717 F.2d 413 (7th Cir. 1983).

Brief Fact Summary. A contractor's work was rejected due to a provision in the
construction contract stating that all matters relating to "artistic effect" were subject to the
final approval of the owner.

Synopsis of Rule of Law. An objective standard of reasonableness is the proper standard

to employ in a construction contract for commercial building.

Facts. General Motors hired the Defendant, Baystone Construction, Inc. (Defendant), to
build an addition to one of its factories. The Defendant hired the Plaintiff, Morin Building
Products Company (Plaintiff), to supply and construct the aluminum walls of the factory.
The contract required the Plaintiff to supply aluminum with a mill finish that would
match the existing metal siding. It also contained a clause providing that "all work shall
be done subject to the final approval of the Architect or Owner's authorized agent, and his
decision in matters relating to artistic effect shall be final." After the completion of the
walls, General Motor's agent rejected the work on the ground that the building did not
have a uniform finish, as required by the contract. The Defendant refused to pay the
Plaintiff the balance of the contract price. The lower court issued judgment for the
Plaintiff. The Defendant appealed on the basis that an objective standard was used to find
that General Motor's rejection of the work was unreasonable.

Issue. Is an objective standard the proper standard to invoke in contract cases involving
the construction of commercial buildings?

Held. Yes. Judgment affirmed. An objective standard is the appropriate standard to

employ in a contract for the construction of a commercial building. Therefore, General
Motor's rejection of the Defendant's work on aesthetic grounds was unreasonable.

Discussion. The court arrived at its conclusion by performing a textual analysis of the
contract. While the contract explicitly referred to "artistic effect," it found that this was a
form contract and the term was qualified in such a way that limited its effect to cases
where a buyer is specifically trying to achieve a certain aesthetic, such as when buying a
painting. The court also examined the intentions of the parties. It reasoned that the parties
would not have intended to allow the work to be rejected on artistic grounds, as this
would have resulted in an extremely high, almost impossible standard that would have
caused the Plaintiff to demand higher compensation. The court also reasoned that if a
uniform finish was important to the Defendant, it would have specified the use of a
painted finish instead of aluminum, which is extremely difficult to make uniform.
158

CHAPTER XI. Expectation

Damages: Principles And
Limitations
159 Turner v. Benson
Turner v. Benson

Citation. 672 S.W.2d 752 (Tenn. 1984).

Brief Fact Summary. This case involves a real estate contract where the buyer breached,
causing the seller to incur substantial expense.

Synopsis of Rule of Law. Special damages are recoverable from a breach of a real estate
transaction to the extent that they directly stem from the breach and they are in
reasonable contemplation of the parties at the time the contract was made.

Facts. The Plaintiffs, Robert and Anna Turner (Plaintiffs), entered into a contract to sell
their residence to the Defendants, Jerry and Janice Benson (Defendants). The purchase
price was stated in the contract as $75,000. When the contract was made, the Defendants
were aware that the Plaintiffs operated a day-care out of their home. The Defendants were
also aware that the Plaintiffs planned to move to a smaller home because they planned to
terminate their day-care business. After the Defendants secured financing, the Plaintiffs
entered into a contract to purchase another home. The Defendants failed to show up at the
closing and they never completed the transaction. The Plaintiffs brought suit for damages
claiming: (i) loss of income from the day-care facility, (ii) interest on the payment due at
closing, (iii) loss resulting from the forced sale of their vehicle to avoid foreclosure, (iv)
advertising expenses to try to sell the property at auction, (v) charges for moves, (vi)
commission difference on the resale of the property, (vii) plumping repairs, (viii)
reissuance of insurance, (ix) utilities cost and (x) interest paid to mother on the loan.
Approximately one year after the breach, the Plaintiffs were able to sell the residence for
$76,000. Therefore, the suit was tried only on the damage claim. The trial court awarded
special damages, except for loss of income from the day-care business. The Court of
Appeals remanded the case to determine the proper measure of damages.

Issue. Are special damages recoverable from a breach of a real estate contract?

Held. Yes. Judgment affirmed and this case remanded to determine the proper measure of
damages.

1 Generally, the proper measure of damages in a breach of a real estate

transaction is the difference between the contract price and the fair market
value of the property at the time of the breach.

2 Special damages may be recovered where they are caused by the breach
and they are made in reasonable contemplation of the parties when the
contract was made.

3 In the instant case, lost income from the day-care business did not stem
from the breach, nor was it in reasonable contemplation of the parties
because Plaintiff planned to terminate the business.
160 Turner v. Benson
1 In the instant case, Plaintiffs are entitled to all expenses they incurred
from owning two houses at once, interest from the amount due at the
closing, the loss of their automobile which was sold to avoid foreclosure,
moving expenses, plumbing repairs and costs involved with insurance and
utilities.

Discussion. The court examined each item that the Plaintiff claimed as damages to
determine which items directly stemmed from the Defendants' breach and which damages
the parties could reasonably contemplate when the contract was made. The court
examined the testimony and evidence presented in the lower court. It reasoned that both
parties were aware that the Plaintiffs planned to quit the day-care business and therefore,
loss of income from this business was not recoverable because it was not in reasonable
contemplation of the parties. On the other hand, the Defendants were aware that the
Plaintiffs were relying on the proceeds of their sale to finance the purchase of their new
home. Therefore, all expenses stemming from the fact that the Plaintiffs were forced to
own two homes at once were recoverable. The advertising costs, moving expenses,
plumbing expenses, utilities, and insurance were all related to the Plaintiffs' attempt to
mitigate damages stemming from the breach. Therefore, they are a normal and
foreseeable result of the breach and within contemplation of the parties. The claim for the
difference in the realtor's commission had not merit because it involved a net gain to the
Plaintiffs.
161 Handicapped Children's Educ. Bd. v. Lukaszewski
Handicapped Children's Educ. Bd. v. Lukaszewski

Citation. 332 N.W.2d 774 (Wis. 1983).

Brief Fact Summary. Employee terminated her employment contract forcing her
employer to hire a replacement at a higher salary.

Synopsis of Rule of Law. The non-breaching party is entitled to full compensation for
the loss of the benefit of the bargain.

Facts. The Plaintiff, Handicapped Children's Education Board (Plaintiff), hired the
Defendant, Lukaszewski (Defendant), as a speech and language therapist. The Plaintiff
offered to renew the Defendant's contract and the Defendant accepted. However, prior to
the beginning of the next school year, the Defendant accepted another job offer that paid
a higher salary and that was closer to her home. The Plaintiff refused to release the
Defendant from her contract. The Defendant then obtained a doctor's note stating that she
had high blood pressure and submitted a letter of resignation. She then began her new
position. Only one qualified person applied to be the Defendant's replacement. This
applicant had more teaching experience than the Defendant and therefore, the Plaintiff
was forced to pay her a hire salary. The Plaintiff filed suit against the Defendant for the
difference in salary it was forced to pay when Defendant breached her contract.

Issue. Is an employer entitled to damages resulting from breach of an employment

contract?

Held. Yes. Judgment reversed. The Defendant did breach her employment contract and
therefore the Plaintiff is entitled to have the benefit of its bargain restored.

Dissent. The dissent disagrees with the court when it found that the Defendant breached
her employment contract. Instead, the dissent argues that she legitimately terminated her
employment contract due to health reasons.

Discussion. The court reasoned that damages resulting from breach of contract are
measured by the expectations of the parties. The court rejected the Defendant's argument
that the Plaintiff was not damaged by her breach because it gained a more experienced
teacher. The court found that the Plaintiff's expectations were not to hire a more
experienced teacher. Instead it expected to receive the services specified in the
Defendant's contract for the salary specified in the Defendant's contract. The court also
reasoned that although Plaintiff had a duty to mitigate damages, since only one qualified
applicant applied for the position, Plaintiff had done all it could to mitigate.
162 American Standard, Inc. v. Schectman
American Standard, Inc. v. Schectman

Citation. 427 N.E.2d 512 (N.Y. 1981).

Brief Fact Summary. A demolition and excavating contractor agreed to perform certain
duties and then failed to perform them as specified in the contract.

Synopsis of Rule of Law. Where a breach of contract is not incidental to the main
purpose of the contract and the contract was not completed, the proper measure of
damages is the cost of completion.

Facts. The Plaintiff, American Standard, Inc. (Plaintiff) and the Defendant, Schectman
(Defendant), entered into a contract whereby the Plaintiff agreed to convey its buildings
and equipment to Defendant. In return, the Defendant was to render payment and remove
the equipment, demolish the structures and grade the land as specified. The Defendant
failed to grade the property as agreed upon in the contract. The cost to complete the
grading was estimated by the Plaintiff's expert as $110,500. The Defendant argued that
this amounted to a windfall and that the correct measure of damages ought to be the
diminution in value of the property, resulting from his lack of performance. The lower
court rendered a jury verdict for the Plaintiff, in the amount of $90,000, based on the cost
of completing the grading.

Issue. Is the cost of completion the proper measure of damages where a contractor failed
to complete the contract as specified and such failure was not incidental to the purpose of
the contract?

Held. Yes. Judgment affirmed.

1 The court found that when a contract is substantially performed in good

faith, the correct measure of damages for any defect would be the
difference in value of the property as constructed from what its value
would be if the contract were properly performed.

2 The court found that in the instant case, the contract was not substantially
performed and therefore, the correct measure of damages would be the
cost of completion.

Discussion. The court distinguished this case from Jacob and Youngs, Inc. v. Kent, 129
N.E. 889 (N.Y. 1921), where it was found that a contractor's use of the wrong brand of
pipe amounted to substantial performance, when the pipe was of similar quality to that
specified in the contract and the cost of replacing it would have been grossly out of
proportion to the difference in property value resulting from the error. In contrast, in the
instant case, the Defendant did not make such a minor error. In fact, he failed to complete
the contract to which he agreed. Thus, this is not a case of substantial performance. The
court also reasoned that the high price of completion supports the fact that the Defendant
did not complete the contract in good faith, as the damages were not nominal. Also, the
163 American Standard, Inc. v. Schectman
court stated that it is reasonable to expect that the damages resulting from the failure to
complete the contract would be the cost of completion.
164 Hadley v. Baxendale
Hadley v. Baxendale

Citation. 156 Eng. Rep. 145 (1854).

Brief Fact Summary. This case involves a mill that lost profits due to the delay in
delivery of a new crank shaft.

Synopsis of Rule of Law. Unless special circumstances are clearly communicated,

damages resulting from a breach of contract should be only those that may be fairly and
reasonably considered at the time the contract was made.

Facts. The Plaintiff in this case was a miller. On May 11, Plaintiff's mill stopped due to a
broken crank shaft. On May 12, Plaintiff found that the shaft had been fractured. The mill
did not possess any other crank shafts; therefore, it was necessary to obtain a new one so
that the mill could resume work. In order to obtain a new shaft, Plaintiff had to send the
broken shaft to the manufacturer in Greenwich so that it could be used as a model for a
new shaft. On May 13, Plaintiff's servant went to a well-known carrier to inquire about
shipping the shaft to Greenwich. The servant requested that the broken shaft be sent
immediately because the mill was stopped. The carrier informed the servant that if they
received the crank shaft before noon, it could deliver it to Greenwich the following day.
The servant brought the crank shaft to the carrier before noon and paid for the shipment.
However, the delivery was delayed due to the carrier's neglect. This delay caused the
Plaintiff to lose profits because it did not receive a new crank shaft for several days and
could not resume work until it received the new shaft. Plaintiff then sued for lost profits.

Issue. Are lost profits recoverable when they are not contemplated by the parties at the
time a contract is made?

Held. No. Judgment reversed.

Discussion. First, the court examined general rules of contract law to find that "the
amount which would have been received if the contract had been kept, is the measure of
damages if the contract is broken." Damages that may be properly awarded are those that
the parties may "fairly and reasonably" consider as arising from a breach at the time the
contract is made. The court then recognized that there are times where special
circumstances are involved and these circumstances could result in damages beyond
those that the parties could reasonably contemplate when forming the contract. However,
where such special circumstances are present, they must be made known and clearly
communicated to the other party so that they are within the parties' contemplation when
they enter into the contract. In the instant case, such special circumstances were present.
Specifically, the special circumstances in this case are the fact that the mill owned only
one crank shaft and therefore would not be able to work until the carrier delivered the
new crank. These special circumstances were not clearly communicated to the Defendant
and lost profits are not the type of damages that one would reasonably expect to flow
from a delay in delivery of a crank shaft to a third party. Therefore, the lost profits could
165 Hadley v. Baxendale
not be said to have been fairly and reasonably contemplated by the parties as damages
that would result from a breach of the delivery contract.
166 Florafax International, Inc. v. GTE Market Resources, Inc.
Florafax International, Inc. v. GTE Market Resources, Inc.

Citation. 933 P.2d 282 (Okla. 1997).

Brief Fact Summary. This case involves a breach of a contract for telecommunications
services between two companies, causing one company to lose profits stemming from a
third-party contract.

Synopsis of Rule of Law. Lost profits are recoverable so long as they are (1) foreseeable
when the contract was made; (2) they directly or proximately result from the breach and
(3) they are capable of accurate estimation.

Facts. The Plaintiff, Florafax International, Inc. (Plaintiff) entered into a contract with
Bellerose Floral, Inc. in which the parties agreed that Plaintiff would handle a certain
amount of floral orders for Bellerose Floral. This contract contained a clause stating that
either party could terminate the contract upon sixty days written notice. Shortly
thereafter, the Plaintiff entered into another contract with the Defendant, GTE Market
Resources (Defendant), stating that the Defendant was to operate a call answering center
on behalf of the Plaintiff. This contract contained a provision stating "in the event GTE
ceases to perform its duties.GTE agrees to pay Florafax consequential damages and
lost profits on business lost." The call center was to handle calls related to placing and
fulfilling floral orders, including those covered by the contract between the Plaintiff and
Bellerose Floral. In the lower court, evidence was presented that the Defendant
determined that its contract with the Plaintiff was not profitable. In addition, the
Defendant failed to perform its duties adequately. For example, it failed to provide
enough sales representatives to handle the influx of calls the week before Mother's Day,
causing the Plaintiff to lose sales. The loss of sales caused by the Defendant's
performance, ultimately caused Bellerose to terminate the contract with the Plaintiff. The
Plaintiff sued the Defendant for breach of contract, seeking lost profits from the loss of its
contract with Bellerose Floral. The jury awarded the Plaintiff $750,000 in lost profits.

Issue. Are lost profits from a collateral, or third-party contract properly recoverable from
a breach of contract claim?

Held. Yes. Judgment affirmed.

1 The court found that in the instant case, the loss was foreseeable to the
parties at the time the contract was made, the loss did flow directly from
the breach, and the loss was capable of accurate measurement.

2 The court also found that the sixty-day termination provision in the
contract between the Plaintiff and Bellerose Floral did not preclude the
recovery of lost profits because the Defendant did not have a right to
terminate its contract on short notice.
167 Florafax International, Inc. v. GTE Market Resources, Inc.
Discussion. The court reached its conclusion that lost profits are recoverable by
examining Oklahoma law and general rules of contract law as found in Hadley v.
Baxendale, 9 Ex. 341, 156 Eng. Rep. 145 (1854). Awarding lost profits puts the aggrieved
party in the place it would have been if the contract were properly performed. In the
instant case, lost profits were within the Defendant's contemplation when the contract
was made, especially as there was a clause in the contract stating that the Defendant
would be liable for lost profits, in the event that it breached. The court also found that
there was a preponderance of the evidence presented in the lower court to show that the
Plaintiff did, in fact, lose profits from the Defendant's breach. For example, both parties
presented experts who, while they differed on the amount of the loss, both projected a
loss. Also, because the jury award was within the range of lost profits as projected by
both parties' experts, the loss was capable of accurate estimation.
168 Rockingham County v. Luten Bridge Co.
Rockingham County v. Luten Bridge Co.

Citation. 35 F.2d 301 (4th Cir. 1929).

Brief Fact Summary. A company hired to build a bridge continued work on the bridge,
even after the county repudiated the contract.

Synopsis of Rule of Law. Once a contract is breached, the non-breaching party has a
duty not to increase the resulting damages.

Facts. The Defendant, Rockingham County (Defendant), hired the Plaintiff, Luten Bridge
Co. (Plaintiff), to construct a bridge. Thereafter, the County Commission voted not to
continue with the construction of the bridge and informed the Plaintiff to stop work on
the bridge contract. The Plaintiff, however, continued constructing the bridge. The
Plaintiff then filed suit to recover damages stemming from The Defendant's breach of
contract.

Issue. Does a non-breaching party have a duty to mitigate damages stemming from the
other party's breach?

Held. Yes. Judgment reversed and remanded.

1 Although the Defendant breached the contract, the Plaintiff had a duty to
stop work and not increase the damages stemming from the breach.

2 The proper remedy when one party repudiates a contract is to sue for
recovery of damages that were sustained from the breach when the non-
breaching party receives notice of the breach.

Discussion. The court examined the facts of the case and found that the Plaintiff had
notice that the Defendant breached the contract. It then looked to case law, which
provides that in such a case, the Plaintiff has a duty not to aggravate damages.
169 Boehm v. American Broadcasting Co.
Boehm v. American Broadcasting Co.

Citation. 929 F.2d 482 (9th Cir. 1991).

Brief Fact Summary. An employee was wrongfully terminated, but the employer
subsequently offered that employee a new position in the company, which the employee
refused.

Synopsis of Rule of Law. A wrongfully terminated employee has a duty to mitigate

damages by accepting an offer of employment only if the new position is substantially
similar to the employee's previous position.

Facts. The Defendant, American Broadcasting Co. (Defendant), wrongfully terminated

the Plaintiff, Boehm (Plaintiff). Following his termination, the Defendant offered the
Plaintiff another, newly created position. The base salary in the new position was
equivalent to the Plaintiff's previous salary. However, the parties disagreed as to whether
the total compensation would be equivalent to the Plaintiff's total previous compensation
and whether the job responsibilities were equivalent. The new position was never filled.
The Plaintiff sued and his contract claims consisted of breach of implied employment
contract and breach of the covenant of good faith and fair dealing. A jury found in favor
of the Plaintiff.

Issue. Does an employee who has been wrongfully terminated have a duty to mitigate
damages by accepting new employment?

Held. Yes, where the new employment is substantially similar to the previous position.
Judgment affirmed.

1 This Court found that an employee who has been terminated does have a
duty to mitigate damages through reasonable efforts to find other
employment.

2 The employee only has a duty to mitigate damages by accepting a new

position if that position is substantially similar to his previous position.

3 In the instant case, the jury found that the Defendant's job offer was not
substantially similar to the Plaintiff's previous position at ABC.

Discussion. The court examined California law, which requires an employee to mitigate
damages by taking reasonable efforts to seek alternate employment. However, under
California law, the Defendant had the burden to prove that the Plaintiff failed to accept a
position that was equivalent or substantially similar to the position from which he was
terminated. Whether the two positions were equivalent in terms of compensation and
responsibilities was in dispute and therefore a question for the jury. At the lower court,
the jury found for the Plaintiff, which implies that the jury found that the positions were
not substantially similar. In the instant case, the court agreed with the jury that the
170 Boehm v. American Broadcasting Co.
Defendant did not meet its burden. The court was also satisfied that the jury's decision
was supported by the record.
171 Jetz Serv. Co. v. Salina Properties
Jetz Serv. Co. v. Salina Properties

Citation. 865 P.2d 1051 (Kan. Ct. App. 1993).

Brief Fact Summary. A property company breached a contract with a lost volume
supplier of coin-operated laundry equipment.

Synopsis of Rule of Law. The duty to mitigate damages does not apply to lost volume
sellers.

Facts. The Appellant, Salina Properties (Appellant), leased space to the Appellee, Jetz
Service Co. (Appellee), for the installation of coin-operated laundry equipment in an
apartment complex. The lease was for a term of six years. However, the Appellant
disconnected the laundry equipment with sixteen months remaining on the lease. The
Appellee re-leased some of the laundry machines. However, it had enough machines to
enter into both transactions. The Appellee then sued for lost profits. The lower court
found that the Appellee was a lost volume lessee and it awarded lost profits accordingly.
On appeal, the Appellant argues that the Appellee failed to mitigate its damages.

Issue. Does a lost volume lessee have a duty to mitigate its damages?

Held. No. Judgment affirmed.

1 This Court agreed with the lower court and found that the Appellee was a
lost volume lessee.

2 Lost volume lessees can be service suppliers, as well as sellers of goods.

3 The court found that a lost volume lessee does not have a duty to
mitigate damages, where the lessee had sufficient resources to enter into
multiple contracts.

4 Also, the court found that lost profits directly stemmed from the
Appellant's breach of contract.

Discussion. The court first examined whether the Appellee was a lost volume lessee. It
reasoned that it was a lost volume lessee because it had enough equipment to enter into
multiple contracts at once and it was continually seeking new business. The court noted
that there was no Kansas law on point, but it examined cases in other jurisdictions that
supported the conclusion that lost volume sellers should not be required to mitigate where
the contract does not "preclude plaintiff from undertaking and being engaged in the
performance contemporaneously of other contracts." The court also noted that the
concept of lost volume seller should be applied to service suppliers as well as providers
of goods because the concept is analogous.
172 Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co.
Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co.

Citation. 2001 WL 1000927 (N.D. Ill. 2001).

Brief Fact Summary. Plaintiff, a Mexican company, brought suit against Defendant, an
American company, to recover for nonpayment of invoices and attorneys' fees associated
with their suit.

Synopsis of Rule of Law. When a party breaches in bad faith, the party seeking to
recover may be able to collect attorneys' fees if they are forced to litigate as an only
option to recovery.

Facts. Defendant contracted to buy tin cans from Plaintiff. After Defendant fell behind in
its payments, Plaintiff refused to make further delivery until its account was brought up
to date. At that point, Defendant threatened that Plaintiff would not be paid if it stopped
shipment, and Plaintiff was forced to bring suit to recover over $800,000 in past due
invoices. Plaintiff additionally made a claim for attorneys' fees, based on the fact that it
was forced to litigate as its only means of recover. Defendant acknowledged the debt, but
relied on the American rule, which precluded the payment of attorneys' fees to Plaintiff as
a non-recoverable damage. Plaintiff countered, arguing that it was forced to litigate due to
Defendant's bad faith and was entitled to attorneys' fees.

Issue. May the American rule regarding apportionment of attorneys' fees be applied to a
foreign party, when the foreign party is forced to litigate due to another party's bad faith
breach of contract?

Held. No. In these circumstances, an aggrieved party may recover attorney's fees.

1 In this case, the Court relied on the fact that both parties agreed that their
dispute would be governed by the Covenant on the International Sale of
Goods (CISG), which allows the parties to stipulate to the awarding of
attorneys' fees.

2 By their own stipulation, these parties agreed that attorney's fees may be
awarded at the discretion of the Court. Thus, this Court used its discretion
and awarded said fees, holding that it would be fundamentally unfair to
subject a Mexican company to the American rule regarding attorneys' fees.

3 Alternatively, the Court also looked to the good faith, or lack thereof, of
the parties and determined that Defendant was in bad faith when it refused
payment for items that Defendant acknowledged was owed, and caused
Plaintiff to commit to litigation to recover payment.
Discussion. As a general rule, attorneys' fees are not recoverable in an action for breach
of contract. The caveat to the rule is that attorneys' fees may be recoverable in an
international contract, when dealing with a party whose laws would allow it to recover.
173 Zapata Hermanos Sucesores, S.A. v. Hearthside Baking Co.
Additionally, when a party breaches in bad faith, and causes another party to go
additional lengths, including litigation, that party may be liable for attorneys' fees.
174 Erlich v. Menezes
Erlich v. Menezes

Citation. 981 P.2d 978 (Cal. 1999).

Brief Fact Summary. Plaintiffs contracted with Defendant, a general contractor, to build
their dream home. After the rains came, it was discovered that the house was defective.
There were leaks in every room and major structural problems. Plaintiffs brought suit for
the full costs associated with repair of the home, and for emotional distress.

Synopsis of Rule of Law. Tort remedies are not available in breach of contract actions.

Facts. At trial of this matter, the court found that the Defendant had not acted with intent,
and that he was not guilty of fraud and negligent misrepresentation. The trial court,
however, did find that he breached his contract and he was assessed the cost of repairs on
the house. Additionally, Plaintiffs were awarded damages for emotional distress. The
Court of Appeals affirmed the judgment, noting in their opinion that a breach of contract
action may support a tort claim as well. Defendant appealed.

Issue. Are tort remedies available in a breach of contract action, when a plaintiff can
prove the elements of the tort?

Held. No. Reversed.

1 In reversing the judgment of the lower courts, the California Supreme

Court held that damages for emotional distress were unavailable to these
Plaintiffs.

2 Because Plaintiffs could not prove that Defendant had acted with bad
intent, such that he was guilty of any fraud or misrepresentation, the
Plaintiffs' only remedy was for breach of contract.

3 In reaching its opinion, the California Supreme Court also found that
Plaintiffs could not prevail on an emotional distress claim, when they
continued to reside in the residence for five years.

Discussion. As a general rule, tort remedies are not available in breach of contract
actions. The exception to this rule is when the breaching party breaches an additional or
special duty, or acts with intent and malice. In this case, Defendant was negligent, but he
was not guilty of fraud and had no duty to insure that Plaintiffs' emotional stability
remained in the status quo.
175 Roth v. Speck
Roth v. Speck

Citation. 126 A.2d 153 (D.C. 1956).

Brief Fact Summary. This case involves a breach of employment contract where the
employer could not find a suitable replacement for the breaching employee.

Synopsis of Rule of Law. The value of an employee's services may be an appropriate

measure of damages resulting from breach of an employment contract, so long as these
damages can accurately be proved.

Facts. The Plaintiff owned a hair salon and hired the Defendant for a term of one year.
Under the terms of the employment contract, the Defendant was to be paid the greater of
either $75 a week or a commission of fifty percent on the gross receipts of his work. After
six and a half months, the Defendant quit. The Plaintiff hired a replacement employee
who he paid $350. However, this employee was not profitable and therefore he was let
go. A second replacement also failed to earn his salary and was employed at a loss to the
Plaintiff. At the trial court, the Plaintiff testified that the Defendant was a very good
hairdresser and that he earned $100 per week. The lower court found for the Plaintiff, but
only awarded nominal damages in the amount of one dollar.

Issue. Is the value of an employee's services an appropriate measure of damages in a

breach of employment contract case?

Held. Yes. Judgment regarding amount of damages awarded was reversed.

1 Where a plaintiff proves a breach of contract he is entitled to damages.

However, when he offers vague proof or no proof of actual damages, he is
entitled only to nominal damages.

2 In the instant case, there was proof of accurate damages with regard to
the value of the Defendant's services.

Discussion. The court reasoned that the Plaintiff did prove actual damages by proving the
amount in salary the Defendant received each week. Moreover, the Defendant did not
disprove that this was not an accurate measure of his fair value, as was his burden.
176

CHAPTER XII.
Alternatives To
Expectation Damages:
Reliance And
Restitutionary Damages,
Specific Performance, And
Agreed Remedies
177 Wartzman v. Hightower Productions, Ltd.
Wartzman v. Hightower Productions, Ltd.

Citation. 456 A.2d 82 (Md. 1983).

Brief Fact Summary. A corporation could not achieve its stated purpose because it was
not properly structured due to the negligence of its attorney.

Synopsis of Rule of Law. In the event of a breach of contract, damages for expenses
incurred in reliance on the contract are recoverable, less any loss that would have resulted
if the contract had been performed.

Facts. The Appellee, Hightower Productions, Ltd. (Appellee), was formed for the
purpose of breaking the Guinness World Record for flagpole sitting. The Appellee hired
the Appellant, Paul Wartzman (Appellant), as a lawyer to incorporate the venture. The
Appellee informed the Appellant that it needed to sell stock to raise the funds necessary
to finance the project. After the Appellee began selling the stock, the Appellant informed
the Appellee that the corporation was "structured wrong" and was not properly authorized
to sell stock. The Appellee also advised the Appellant to retain a securities attorney to
correct the problem, which would cost approximately ten to fifteen thousand dollars. The
Appellee's shareholders elected to abandon the project. The Appellee then filed suit on
breach of contract and negligence grounds seeking damages for expenses incurred in
reliance of the contract, including the promotors' initial investments, shareholders'
investments, outstanding liabilities, liability to talent consultants and accrued salaries to
employees.

Issue. If anticipated profits are speculative, are damages incurred in reliance on the
contract recoverable?

Held. Yes. Judgment affirmed. The Appellant was entitled to recover any loss that he
incurred from relying upon the contract.

Discussion. The court reasoned that in the instant case, the Appellant knew that the
Appellee was dependent upon the ability to sell stock to finance the venture. Therefore,
the nexus between the breach and the failure of the project was established. The court
examined case law and the Restatement of Contracts to find that recovery of reliance
damages is proper where lost profits are too uncertain to calculate. It noted that this
doctrine is limited in cases where the breaching party can prove that the other party
would have sustained greater loss if the contract had been performed. Furthermore, while
generally a breaching party is liable only for those expenses that are a foreseeable result
of a breach at the time the contract was made, these limitations do not apply to an
attorney when his client is relying upon his skill and knowledge. Finally, the court
reasoned that the Appellant was under no duty to mitigate its damages by hiring a
security specialist because this would cost a substantial amount of money and parties are
not obligated to mitigate damages by incurring large expenses. Also, the Appellant
himself could have hired a specialist and chose not to do so.
178 Walser v. Toyota Motor Sales, U.S.A., Inc.
Walser v. Toyota Motor Sales, U.S.A., Inc.

Citation. 43 F.3d 396 (8th Cir. 1994).

Brief Fact Summary. A car dealer was mistakenly told that he was approved to be a
Lexus dealer and in reliance on this promise, his father bought property for the new
dealership.

Synopsis of Rule of Law. Damages from a promissory estoppel claim may properly be
limited to out-of-pocket expenses.

Facts. The Defendant, Toyota Motor Sales (Defendant), was looking for prospective
automobile dealers for its new line of Lexus automobiles. The Defendant contacted the
Plaintiff, Walser (Plaintiff), to discuss the possibility of the Plaintiff becoming a Lexus
dealer. The Defendant instituted a three-step process to establish its dealerships. First, the
prospective dealer had to fill out an application and propose a dealership plan. Then the
Defendant would issue a letter of intent containing the final conditions that had to be
satisfied before the deal would become final. Finally, when all conditions were satisfied,
the Defendant would approve the agreement. After the Plaintiff applied for the dealership,
an agent of the Defendant told Plaintiff that its letter of intent had been approved and that
"you're our dealer." A few days later, the Plaintiff was notified that this was a mistake and
that additional financial information was necessary. Ultimately, the Plaintiff was not
granted the dealership. However, the Plaintiff's father had purchased property to be used
for the new dealership. The Plaintiff brought suit on a promissory estoppel claim, among
others. The jury found for the Plaintiff on the promissory estoppel claim, but limited
damages to out-of-pocket expenses. The Plaintiff appealed seeking lost profits from loss
of the Lexus dealership.

Issue. Is it proper to limit the damages in a promissory estoppel claim to out-of-pocket

expenses?

Held. Yes. Judgment affirmed. The court held that relief may be limited to the party's out-
of-pocket expenses made in reliance on the promise.

Discussion. The court noted that Minnesota adopted the doctrine of promissory estoppel
found in the Restatement (Second) of Contracts, which provides that "the remedy granted
for breach may be limited as justice requires." The Minnesota courts have interpreted this
to permit limiting relief to out-of-pocket expenses. The court relies on the permissive
language of the Restatement and the court opinions to reason that it is within the
discretion of the courts to limit relief in the manner. The court then examined whether the
court abused its discretion by limiting the relief to out of pocket expenses. It found that it
did not as the evidence showed that the deal was "far from a certainty," the negotiations
were still in the preliminary stage and the Defendant tried to rectify the situation as soon
as possible by informing the Plaintiff of the mistake only a couple days after it was made.
Furthermore, the Plaintiff failed to demonstrate that they lost an opportunity by relying
on the Defendant's promise.
179 United States ex rel. Coastal Steel Erectors, Inc. v. Algernon Blair, Inc.
United States ex rel. Coastal Steel Erectors, Inc. v. Algernon Blair, Inc.

Citation. 479 F.2d 638 (4th Cir. 1973).

Brief Fact Summary. A subcontractor justifiably breached a construction contract due to

lack of payment and then brought suit to recover the cost of labor and equipment it
furnished.

Synopsis of Rule of Law. A subcontractor may recover in quantum meruit for the value
of labor and equipment furnished, regardless of whether he would be entitled to recover
for suit on the contract.

Facts. The Defendant, Algernon Blair (Defendant), entered into a construction contract
with the United States for the construction of a naval hospital. The Defendant
subcontracted with The Plaintiff, Coastal Steel Erectors (Plaintiff), to perform steel
erection and supply certain equipment in conjunction with Defendant's contract with the
United States. The Plaintiff rented cranes in order to fulfill its contractual obligations, but
the Defendant refused to pay for the crane rental. After completing approximately
twenty-eight percent of the job, the Plaintiff terminated its performance because of the
Defendant's refusal to pay for the crane rental. The Plaintiff filed suit to recover for labor
and equipment furnished. The district court found that the Defendant's refusal to pay for
the crane rental was a material breach of the contract and that the Defendant owed the
Plaintiff $37,000. However, the district court found that the Plaintiff was precluded from
recovering because it would have lost more than $37,000 if it had completed the job.

Issue. Is a subcontractor permitted to recover for the value of services rendered, even if
he could not have recovered in a breach of contract suit?

Held. Yes. Judgment reversed.

1 The court held that the Defendant breached the subcontract by not paying
for the crane rentals.

2 The court then found that precluding the Plaintiff from recovering would
allow the Defendant to be unjustly enriched. Therefore, the Plaintiff
should recover in quantum meruit.

3 The measure of recovery from quantum meruit is the reasonable value of

performance, which is determined by the amount for which such services
could have been purchased.

Discussion. The court examined case law of other jurisdictions to find that the non-
breaching party has a right to recovery in quantum meruit. The court examined the policy
behind restitution in contract law and reasoned that its purpose is to prevent unjust
enrichment. Therefore, recovery in quantum meruit is permitted even if the party would
have lost money on the contract. Otherwise, the Defendant would have benefited from
the very services for which it refused to pay.
180 Lancellotti v. Thomas
Lancellotti v. Thomas

Citation. 491 A.2d 117 (Pa. Super. Ct. 1985).

Brief Fact Summary. This case involves an agreement where one party breached and
then demanded return of payment that he made prior to breaching.

Synopsis of Rule of Law. A breaching party is entitled to restitution in excess of the loss
caused by the breach.

Facts. The Appellant entered into an agreement with the Appellee, where the Appellant
agreed to purchase the Appellee's luncheonette business and to rent the premises on
which the business is located. In return, in addition to paying rent, the Appellant agreed to
build an addition onto the structure in which the business was located. The Appellant paid
$25,000 as specified by the agreement. However, it failed to build the addition.
Eventually, the Appellee built the addition. The Appellant lost interest in the business and
the Appellee resumed possession. The Appellant then sued, demanding his payment of
$25,000.

Issue. Is a breaching party entitled to restitution for payments he made prior to his
breach?

Held. Yes. Judgment reversed and remanded for further proceedings. Pennsylvania
should follow the modern view of contract law, which allows a breaching party to recover
"any benefitin excess of the loss that he caused by his own breach."

Dissent. It is well settled that Pennsylvania follows the common law rule, where the
breaching party has no right to restitution.

Discussion. The court examined the common law rule, which denies restitution to a
breaching party. It then examined the criticisms of the rule, finding that essentially it will
allow the non-breaching party to receive a windfall from the breach. The court then
looked to other jurisdictions, finding that many have adopted the modern view that does
allow the breaching party to recover. The court reasons that since Pennsylvania has
adopted the Uniform Commercial Code (UCC), which espouses the modern rule, it ought
to allow the breaching party to recover restitution.
181 Ventura v. Titan Sports, Inc.
Ventura v. Titan Sports, Inc.

Citation. 65 F.3d 725 (8th Cir. 1995).

Brief Fact Summary. A professional wrestler and commentator entered into an oral
contract that was silent on the subject of royalties and then entered into a second contract
where he was fraudulently mislead regarding the subject of royalties.

Synopsis of Rule of Law. Quantum meruit is available in cases where there is an existing
contract if the contract is silent regarding the benefit for which recovery is sought or
when one is fraudulently induced into entering into the express contract.

Facts. The Plaintiff, Jesse Ventura (Plaintiff), was a professional wrestler. He entered into
an oral contract to wrestle for the Defendant, Titan Sports, Inc (Defendant). After
suffering medical problems, the Plaintiff entered into a second oral agreement with the
Defendant to become a commentator. No mention was made of royalties. The Plaintiff
briefly terminated his relationship with the Defendant to become an actor. When the
Plaintiff returned, he entered into another oral agreement with the Defendant. Under this
oral contract, which did not mention royalties, the Plaintiff was again employed as a
commentator. The Plaintiff then hired Barry Bloom as his talent agent. Bloom tried to
negotiate with the Defendant regarding the Plaintiff's royalties and was told that it was
against the Defendant's policy to pay royalties, unless it was to a "feature performer."
With this information, the Plaintiff entered into a new contract with the Defendant that
waived the right to royalties. The Plaintiff eventually filed suit complaining of fraud,
misappropriation of his likeness and quantum meruit. The jury found that the Defendant
had defrauded the Plaintiff regarding its royalties policy and that it misappropriated the
Plaintiff's likeness so that the Plaintiff was entitled to compensation. The district court
found that the Plaintiff was not entitled to a jury trial on his quantum meruit claim and
vacated the jury verdict.

Issue. Is quantum meruit available where one provides services under an express
contract?

Held. Yes. Judgment affirmed.

1 An action for quantum meruit may be based upon benefits unjustly

received from intellectual property.

2 The court found that the district court was correct in awarding damages
for the exploitation of the Plaintiff's image prior to his relationship with
Bloom as his relationship with the Defendant was governed at this time by
the oral contract, which was silent as to royalties.

3 The court also held that the Plaintiff was entitled to quantum meruit even
though he waived his royalties in an express agreement with the
182 Ventura v. Titan Sports, Inc.
1 Defendant because the Plaintiff was defrauded into entering into this
contract.

Dissent. The dissent argues that the Plaintiff should not have received quantum meruit
for the recovery of royalties before he entered into the express contract with the
Defendant because Minnesota does not recognize a right of publicity. Therefore, the
Defendant could not have been unjustly enriched, as it did not illegally infringe on the
Plaintiff's rights. In fact, the Defendant owns the videotapes with the Plaintiff's
commentary and the Plaintiff is not arguing that he was performing any additional duties,
other than those specified by his contract. The dissent points to the fact that Minnesota
does not recognize the invasion of privacy torts.

Discussion. First, the court examined whether there was merit to the Plaintiff's quantum
meruit claim by determining whether the Defendant was unjustly enriched by the
Plaintiff's publicity. As the Minnesota Supreme Court had yet to address the issue of
publicity rights, the court predicted how it would rule on such a case. The court found
that the Minnesota Supreme Court would recognize the right to publicity and therefore,
the Defendant was unjustly enriched as he infringed on the Plaintiff's right to publicity.
The court also examined the terms of the agreements to find that the district court did not
err in awarding damages. Moreover, the court found that it is well settled that unjust
enrichment and quantum meruit may arise from fraud. As the district court found that the
elements of fraud were satisfied, as the Defendant misrepresented its policy on royalties
and Plaintiff relied on this misrepresentation, the court found no clear error.
183 City Stores Co. v. Ammerman
City Stores Co. v. Ammerman

Citation. 394 F.2d 950 (D.C. Cir. 1968).

Brief Fact Summary. A department store contends that it was promised a lease in a
developing shopping mall, in exchange for helping the developer obtain the necessary
zoning permits.

Synopsis of Rule of Law. Where legal remedies are not practicable or adequate, specific
performance may be an adequate remedy to enforce a contract, even when the contract
has left terms open for future negotiation.

Facts. The Defendant, Ammerman (Defendant), was trying to develop a shopping center,
but ran into zoning obstacles. The Plaintiff, City Stores, Co. (Plaintiff), was trying to
negotiate a lease with the Defendant. In the hopes of acquiring a lease in the new
shopping center, Mr. Jangels, the President of one of the Plaintiff's stores, wrote a letter to
be used in a hearing before the zoning board, stating that his store was greatly interested
in becoming a tenant in the Defendant's proposed shopping mall site. In return, Mr. Jagels
received a letter from the Defendant offering him "the opportunity to become one of our
contemplated center's major tenants with rental and terms at least equal to that of any
other major department store in the center" in the event that the Defendant received the
proper zoning permits. The Plaintiff now seeks specific performance of this promise.

Issue. Is specific performance the appropriate means to enforce a contract where certain
terms are left open for future negotiation?

Held. Yes. Judgment for the Plaintiff. The court held that where legal remedies are
inadequate or impracticable and material terms of the contract are definite, the fact that
some terms are left open does not render specific performance an inadequate remedy.

Discussion. The court reasoned that because the Plaintiff was promised a lease with
terms "at least equal" to that of the other major tenants, the material terms could easily be
ascertained by examining the other tenants' leases. The court also reasoned that remedies
at law would not be adequate because they could not compensate the Plaintiff for the
future advantages it would receive by being located in a suburban shopping center. The
court also reasoned that forcing the Defendant to give the Plaintiff a lease would not be
especially detrimental or result in a hardship to the Defendant.
184 American Broadcasting Co. v. Wolf
American Broadcasting Co. v. Wolf

Citation. 420 N.E.2d 363 (N.Y. 1981).

Brief Fact Summary. This case involves a personal service contract containing a good
faith-negotiation and first-refusal provision, which barred the employee from negotiating
with other prospective employers for a specified period of time prior to the expiration of
his contract. It also required the employee to inform his employer of any other
employment offers he received.

Synopsis of Rule of Law. Courts will only use injunctive relief to remedy a breach of a
personal service contract where there is an existing non-competitive agreement and
where an injunction is necessary to protect the employer from irreparable economic
harm.

Facts. Defendant, Warner Wolf, was a sportscaster with Plaintiff, American Broadcasting
Companies. The parties had entered into an employment agreement, which was to
terminate on March 5, 1980. The agreement contained a renewal option, which required
Defendant to negotiate in good faith with Plaintiff for the 90-day period from December
6, 1979 through March 4, 1980, the first 45 days of which were to be exclusive. Upon
termination of the agreement, Defendant was required to give Plaintiff a right of first
refusal until June 3, 1980, which meant that Defendant was to either refrain from
accepting any job offers during this period or inform Plaintiff of the offer before he
accepted. Without Plaintiff's knowledge, Defendant began negotiations with CBS in
October and ultimately entered into an agreement with CBS in February, after the
exclusive period with Plaintiff had terminated. Defendant then resigned from his
employment with Plaintiff and Plaintiff sued, claiming that Defendant breached the good-
faith negotiation and right of first refusal provisions in his contract. Plaintiff sought
specific enforcement of the right of first refusal provision and an injunction to prevent
Defendant's employment with CBS.

Issue. Is Plaintiff entitled to equitable relief where Defendant breached a good faith
negotiation provision of his expired employment contract with Plaintiff?

Held. No. Judgment affirmed.

1 This Court found that Defendant did not violate the right of first refusal
provision as this provision did not apply to offers made before March 5,
the expiration date of the employment agreement.

2 This Court also found that although Defendant did violate the good-faith
negotiation clause, equitable remedies may not be used to specifically
enforce an employment contract.

3 Although courts may grant negative enforcement of an employment

clause, in the instant case, this Court found that injunctive relief is not
185 American Broadcasting Co. v. Wolf
1 warranted because there is no existing employment agreement between the
parties, there is no express anticompetitive covenant, and no claim of
irreparable economic harm to the employer.

Dissent. [Fuchsberg, J.]. The right of first refusal provision amounted to an express
conditional covenant, which Defendant breached by entering into an employment
agreement with CBS before the termination of Defendant's employment agreement with
Plaintiff.

Discussion. The majority bases its decision on the fact that courts have historically
refused to force an individual to work for a particular employer. It particularly looks to
the Thirteenth Amendment and policy considerations that favor free competition and an
individual's right to earn a living. The court notes that negative injunctive relief,
preventing the employee from working for a particular employer, may be permissible
where there is an express anticompetitive covenant and such relief is absolutely necessary
to prevent the employer from facing irreparable harm. However, there is no such
anticompetitive covenant in the instant case since the employment agreement has
terminated.
186 Wasserman's Inc. v. Township of Middletown
Wasserman's Inc. v. Township of Middletown

Citation. 645 A.2d 100 (N.J. 1994).

Brief Fact Summary. Plaintiff Wasserman's Inc. entered into a commercial lease, which
contained a stipulated damages provision, with the Defendant Township of Middletown.
Defendant thereupon cancelled the lease and Plaintiff sued for enforcement of the
stipulated damages provision.

Synopsis of Rule of Law. In the event of a breach of contract, stipulated damages

provisions are enforceable so long as they are reasonable in relation to Plaintiff's actual
damages and they do not act as a penalty.

Facts. Plaintiff leased commercial property from the Defendant from 1948 to 1968. The
parties adopted a new lease in 1971. The new lease contained a provision stating that if
Defendant cancelled, it would be required to pay "twenty-five percent of the lessee ['] s
average gross receipts for one year" to be determined by a specific formula. On
December 7, 1987, Defendant sent Plaintiff a letter canceling the lease, effective
December 31, 1988. Plaintiff sued for breach of contract, seeking enforcement of the
terms of the lease.

Issue. Are contract provisions that stipulate damages in advance, which are to be paid in
the event of a breach, enforceable?

Held. Judgment remanded for further proceedings.

1 Stipulated damage provisions are enforceable if they are a reasonable

forecast of actual damages caused by the breach.

2 The Court held that in general, gross receipts are not a reasonable
measure of actual damage because they are speculative and may amount to
a windfall for Plaintiff. However, this case should be remanded to clarify
certain factual elements that may have a bearing on whether the measure
of gross receipts as stipulated damages is reasonable in this case.

Discussion. The Court first distinguishes between liquidated damages and penalty
clauses, defining liquidated as a good faith estimate of the actual damages that would
result in the event of a breach. On the other hand, a penalty clause is a fixed amount,
which has no relation to amount of actual damages and which merely acts as a
punishment. To determine whether a contract provision is a penalty or whether it is an
enforceable liquidated damage provision, the Court looked to courts of other
jurisdictions, finding that courts generally use a reasonableness standard. The Court this
reasonableness standard as "whether the set amount is a reasonable forecast of just
compensation for the harm that is caused by the breach and whether that harm is
incapable or very difficult of accurate estimate." Thus, the more difficult it is to forecast
the actual damages, the more likely that the stipulated damage clause will be enforceable.
187 Wasserman's Inc. v. Township of Middletown
The Court finds that this standard is reinforced by policy considerations, the UCC, and
the Restatement (Second) of Contracts.
188